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The Changing World of Natural Gas – A New Vision for North America

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Navigant’s Gordon Pickering presents “The Changing World of Natural Gas – A New Vision for North America” at LNG 17. He discusses the dramatic impact natural gas is having on North American energy, …

Navigant’s Gordon Pickering presents “The Changing World of Natural Gas – A New Vision for North America” at LNG 17. He discusses the dramatic impact natural gas is having on North American energy, and takes a look at future LNG export opportunities.

For more insight on Natural Gas, please visit www.navigant.com/naturalgas.

Published in: Business, Economy & Finance

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    • 1. DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. April 17, 2013 The Changing World of Natural Gas – A New Vision for North America LNG 17 George R. Brown Convention Center 1001 Avenida de las Americas Houston, Texas 77010
    • 2. 1©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Important Notice This presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit and internal use of the LNG 17 and its attendees at the George R. Brown Convention Center on April 18, 2013. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from Navigant. This presentation is incomplete without reference to, and should be viewed solely in conjunction with the presentation provided by Navigant. April 18, 2013 ©2012 Navigant Consulting, Inc. All rights reserved. Navigant is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC.
    • 3. 2©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Navigant’s Global Geographical Presence Navigant Overview Sacramento San Francisco Los Angeles Phoenix Dallas Austin Houston Nashville Atlanta Tampa Chicago Toronto Burlington Boston Westbury Lawrenceville Philadelphia Pittsburgh Vienna Reston Denver Detroit Seattle Palo Alto Minneapolis New York St. Louis Fairfield Ottawa Irvine Miami Rochester Prague London Hong Kong ShanghaiBeijing Washington, DC Legend Office includes Energy Practice Office includes other practices Baltimore Montreal Quebec City Boulder
    • 4. 3©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Company Overview Navigant is a Global Consulting Firm Providing Services in the Energy, Construction, Healthcare and Financial Industries. North American Dispute & » Publicly traded since 1996 (NYSE: NCI) » Combination of technical skills and deep industry knowledge » Large engagement capability – more than 2,500 employees in 40 principal offices globally » 2012 revenues of $844 million » Nationwide platform, international presence » Independent – rigorously objective; no audit opinions to defend Management Consulting Energy Construction Financial Services Public Service International Consulting – Energy International Arbitration Commercial Arbitration Healthcare Outsourced Claims Services Economic Consulting Antitrust & Competition Analysis Securities Labor Valuation and M&A Forensic & Accounting Investigations Commercial Litigation / Intellectual Property Financial Advisory Navigant Capital Advisors – US Navigant Capital Markets Advisors – Europe Valuation and Financial Risk Management - US Valuation Services - Europe Disputes and Investigations Discovery Services Disputes Forensic Accounting Global Investigations and Compliance
    • 5. ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING
    • 6. 5©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Abundant Natural Gas has Changed the Vision of the North American Energy Future. N.A. Shale Map Source: EIA
    • 7. 6©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y U.S. Natural Gas » Supply Assessment In Navigant’s North American Natural Gas Supply Assessment Released In July 2008, we first indicated what was to come.
    • 8. 7©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Industry/Governmental Associations Have Confirmed What Navigant First Identified Years Ago (in 2008). • In our ‚North American Natural Gas Supply Assessment‛ we estimated U.S. natural gas resources at over 2,200 Tcf, driven significantly by shale gas resources (842 Tcf) becoming technically recoverable, as well as simply being recognized. At current consumption rates, that is more than 90 years of supply. • Last week, the Potential Gas Committee estimated U.S. potential future natural gas supply is almost 2,700 Tcf (mean) (based on 2,384 Tcf of potential resources plus 305 Tcf of proved reserves), or more than 110 years of supply at current consumption rates. The PGC’s latest increase is driven by a more than 50% increase in its shale gas resource estimate, from 687 Tcf (2010) to 1073 Tcf in two years, to more than double EIA’s current estimate of 482 Tcf. Shale Abundance Confirmed Source: Potential Gas Committee / Colorado School of Mines Report, 4/9/13
    • 9. ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING
    • 10. ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING
    • 11. 10©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Comparative U.S. Oil vs Gas Horizontal Gas Rig Counts Fell Significantly in 2012. A Potential Risk Factor. 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Count U.S. Rig Count Split GAS HORZ Gas DIR GAS VERT OIL Sources: Navigant / Schlumberger Oil Rigs Exceed Gas Rigs
    • 12. ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING
    • 13. 12©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Gas Prices Have Plummeted From Prices of Over $13 per MMBtu in August 2008 to $2.03 per MMBtu at Henry Hub in May 2012, Before Returning to Current Prices (4/9/13) for May 2013 contracts of $4.02 per MMBtu for Henry Hub Natural Gas and $94.20 ($16.17 per MMBtu) for WTI Oil—An Oil Price About 4X the Gas Price per MMBtu Equivalent. Gas Price Changes $0 $4 $8 $12 $16 $20 $0 $2 $4 $6 $8 $10 $12 $14 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 WTI($/MMBtu) $/MMBtu Average Monthly Natural Gas and Crude Oil Prices Sumas AECO-C Henry Hub WTI (Right) Sources: Navigant/Platts
    • 14. 13©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Navigant’s U.S. Forecast Gas Shale Production to 2020 Despite Recent Switching to Oil Directed Drilling, Navigant Expects Strong Gas Shale Production Growth to Continue - To a 57% Share of Total Production by 2020 – From 7% in 2006 – in Only 15 Years. 0 10 20 30 40 50 60 70 80 90 100 2006 2008 2010 2012 2014 2016 2018 2020 Bcfd U.S. Dry Production by Type Shale Conventional 7% Shale 93% Conventional 57% Shale 43% Conventional Source: Navigant’s North American Natural Gas Outlook, Fall 2012
    • 15. 14©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y » So as we’ve seen, the dramatic increase in domestic gas shale has had significant fundamental consequences on the North American gas market over the last 5 years. » The new ‘manufacturing model’ of gas shale production has reformed gas pricing and may assure low gas prices for the long term. The Gas Game Has Changed Over the Last Five Years. The Gas Story Ahead Source: Navigant’s North American Natural Gas Outlook, Fall 2012 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 201 2 201 3 201 4 201 5 201 6 201 7 201 8 201 9 202 0 Real$/MMBtu Monthly Prices Oneok, Okla Kern River, Opal plant SoCal Gas Carthage Hub Dominion, South Point PG&E City-Gate TCPL Alberta, AECO-C Henry Hub
    • 16. 15©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y The New Paradigm – LNG Exports from North America? Source: Canadian National Energy Board » Gas shale potential is situated across North America, including Canada, which has three approved projects at Kitimat, BC. » Cheniere Energy’s Sabine Pass announced sale to its 6th major customer (Centrica) in March 2013 , following announced sales to BG, Gas Natural Fenosa, Korea Gas, GAIL, and to Total. The facility is likely to be the first US LNG export project on- line, in 2015. » Currently, 17 major U.S. (2 West Coast, 2 East Coast, 13 Gulf) and 3 Canadian projects with combined capacity of about 35 Bcfd are going through the export and construction approval process. » Not all projects are likely to go ahead. LNG Exports
    • 17. 16©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y North American LNG Exports—Approximately 30 Bcfd at DOE and 5 Bcfd at NEB Filed or Approved Navigant has assisted in analysis for 8 out of 17 US LNG export projects (highlighted) 13 1 23 4 6 5 7 8 9 11 12 14 10 13 15 16 17 No. Project Location Capacity (Bcfd) Project Sponsor Regulatory Status 1 Kitimat, BC 0.75 / 1.5 Apache Canada Ltd. Approved by NEB 2 Douglas Island, BC 0.23 BC LNG Export Cooperative Approved by NEB 3 Kitimat, BC 3.4 Shell / Mitsubishi / Mitsui Approved w/ NEB 4 Cameron Parish, LA 2.2 (+.52) Cheniere - Sabine Pass LNG DOE Non-FTA Approved, FERC Approved (4 Trains) 5 Freeport, TX 2.8 Freeport LNG (2) Filed w/ DOE 6 Corpus Christi, TX 2.1 Cheniere - Corpus Christi LNG Filed w/ DOE 7 Lake Charles, LA 2.0 Southern Union Filed w/ DOE 8 Cove Point, MD 1.0 Dominion - Cove Point LNG Filed w/ DOE 9 Coos Bay, OR 1.2 FTA/ 0.8 non-FTA Jordan Cove Energy Project Filed w/ DOE 10 Hackberry, LA 1.7 Sempra - Cameron LNG Filed w/ DOE 11 Brownsville, TX 2.8 Gulf Coast LNG Export LLC Filed w/ DOE 12 Warrenton, OR 1.25 Oregon LNG Filed w/DOE 13 Pascagoula, MS 1.5 Gulf LNG Liquefaction Company, LLC Filed w/DOE 14 Elba Island, GA 0.5 Southern LNG Company Filed w/DOE 15 Calhoun County, TX 1.38 Excelerate Liquefaction Solutions I, LLC Filed w/DOE 16 Sabine Pass, TX 2.6 Golden Pass Products LLC Filed w/DOE 17 Offshore LA 3.22 Main Pass Energy Hub, LLC Filed w/DOE (FTA) 18 Plaquemines Parish, LA 1.07 CE FLNG, LLC Filed w/DOE 19 Lake Charles, LA 0.54 Magnolia LNG Filed w/DOE (FTA) 20 Corpus Christi, TX 1.09 Pangea LNG Filed w/DOE (FTA) 1819 20
    • 18. 17©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y North American West Coast LNG Export Assumptions No. Project Location Capacity (Bcfd) Project Sponsor Regulatory Status 1 Kitimat, BC 0.75 / 1.5 Apache Canada Ltd. Approved by NEB 2 Douglas Island, BC 0.23 BC LNG Export Cooperative Approved by NEB 3 Kitimat, BC 3.4 Shell Approved by NEB 9 Coos Bay, OR 1.2 FTA; 0.8 non-FTA Jordan Cove Energy Project Filed w/ DOE 12 Warrenton, OR 1.25 Oregon LNG Filed w/DOE Valdez, Alaska 2.5 Exxon TCPL Conoco Potential Kitimat, BC TBA Alta Gas/Idemitsu Kosan Potential Prince Rupert, BC 3.0 Progress Energy/Petronas Potential Prince Rupert, BC TBA BG Potential Prince Rupert, BC TBA Nexen, INPEX Potential Prince Rupert, BC TBA SK E&S (Korea) Potential Prince Rupert, BC TBA Woodside (Australia) Potential Prince Rupert, BC TBA Imperial/Exxon Potential
    • 19. 18©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y US East Coast LNG Export Assumptions No. Project Location Capacity (Bcfd) Project Sponsor Regulatory Status 8 Cove Point, MD 1.0 Dominion - Cove Point LNG Filed w/ DOE 14 Elba Island, GA 0.5 Southern LNG Company Filed w/DOE
    • 20. 19©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Gulf Coast LNG Export Assumptions No. Project Location Capacity (Bcfd) Project Sponsor Regulatory Status 4 Cameron Parish, LA 2.2 Cheniere - Sabine Pass LNG DOE Non-FTA Approved, FERC Approved 5 Freeport, TX 2.8 Freeport LNG (2) Filed w/ DOE 6 Corpus Christi, TX 1.8 Cheniere - Corpus Christi LNG Filed w/ DOE 7 Lake Charles, LA 2.0 Southern Union Filed w/ DOE 10 Hackberry, LA 1.7 Sempra - Cameron LNG Filed w/ DOE 11 Brownsville, TX 2.8 Gulf Coast LNG Export LLC Filed w/ DOE 13 Pascagoula, MS 1.5 Gulf LNG Liquefaction Company, LLC Filed w/DOE 15 Calhoun County, TX 1.38 Excelerate Liquefaction Solutions I, LLC Filed w/DOE 16 Sabine Pass, TX 2.6 Golden Pass Products LLC Filed w/DOE (FTA) 17 Offshore LA 3.22 Main Pass Energy Hub, LLC Filed w/DOE (FTA) 18 Plaquemines Parish, LA 1.07 CE FLNG, LLC Filed w/DOE 19 Cameron Perish, LA 0.16 Waller Point LNG Filed w/DOE (FTA) 20 Corpus Christi, TX 1.09 Pangea LNG Filed w/DOE (FTA)
    • 21. 20©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Impact of U.S. LNG Exports to Domestic Gas PricesImpact of U.S. LNG Exports to Domestic Gas Prices Navigant Has Found That U.S. LNG Exports Will Lead to Less Than a 10 Percent Increase in Henry Hub Prices Across All Projects Studied*. Such Price Increases Are Small in Comparison to Historical and Forecast Intrinsic Gas Price Volatility. • In addition, percentage impacts are even less when compared to delivered gas prices. For example, the percentage increase versus Northwest Natural’s residential rate ($11.93/MMBtu) is closer to 1-2%. * Caution should be taken in reviewing the published results from multiple projects. (1) Due to the differences in the underlying assumptions, forecasted price responses from different projects should not be directly compared. (2) Most listed LNG export projects are currently under regulatory review. It is unlikely that all projects will be approved. Navigant projects that the total U.S. LNG exports by 2020 will be in the range of 5-6 Bcfd. (3) Price increments from multiple LNG export projects should not be considered as additive. 0% 20% 40% 60% 80% Sabine Pass Corpus Christi Jordan Cove Gulf LNG HH Historical Volatility 2000-12 Increase of Henry Hub Prices in Response to LNG Export Projects 2020 2025 2030 2035
    • 22. 21©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Constraining Factors include: » Proliferation of emerging gas shale resources around the world, including large resources in many countries in Europe and in the Asian Pacific region. » Existence of plentiful gas supply and LNG resources in Qatar and Australia. In Qatar, gas is produced at very low or zero cost due to value of being associated with high value oil production. » Limited likely impact of the Panama canal expansion due to passage rates tied to arbitrage value of commodity going through the canal. » Possible de-linkage of international LNG prices to oil over the long term, diminishing the market value of LNG exports. In the End, the Development of LNG Export Projects in the U.S. Will Be Constrained by a Number of Factors, Mostly Linked to International Competition. Not All LNG Export Projects Will Materialize All things considered, Navigant estimates that total U.S. LNG exports will ultimately be in the range of 5- 6 Bcfd, spread widely around the country and serving both Atlantic and Pacific basins--about 7% -9% of US gas demand at 70 Bcfd.
    • 23. 22©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. E N E R G Y Implications and Challenges of U.S. LNG Exports » LNG exports appear to offer a ‘solution’ to the current demand-constrained North American gas market, which is in need of sustainable markets to support supply abundance, thus fostering U.S. energy security. » LNG exports would also provide: • economic benefits to the local region through job creation and to the national economy through balance of trade and GDP enhancements, • environmental and climate change benefits (lower global GHG emissions), and • a free market-solution to market needs, continuing the fundamental tenets of free trade and market competition as key policies for the U.S., which has itself imported natural gas for many years. » However, North American LNG export opportunities are not assured to last forever. The global natural gas and energy market is subject rapid change, and opportunities in the face of competitive developments may be fleeting. The challenge for LNG is to be able to seize the opportunity available now (by completing licensing, contracting, financing and permitting) and so by providing significant benefits to the U.S. and the U.S. natural gas market. Implications and Challenges Ahead for North American LNG Exports
    • 24. Key C O N T A C T S ©2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2012 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. 23 E N E R G Y Gordon Pickering | Director Rancho Cordova, CA 95670 gpickering@navigant.com 916.631.3249 direct Rick Smead | Director Houston, Texas 77010 rsmead@navigant.com 713.646.5029 direct