Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Deutsche Bank Research - MLPs and Natural Gas

290 views

Published on

The Equity Research - North America operation of Deutsche Bank attended the Platts 9th Annual Appalachian Oil & Gas Conference in Pittsburgh earlier this week. This is the writeup/takeaways from the event.

Published in: News & Politics
  • Be the first to comment

  • Be the first to like this

Deutsche Bank Research - MLPs and Natural Gas

  1. 1. Deutsche Bank Markets Research North America United States Industrials Master Limited Partnerships Industry MLPs and Natural Gas Date 26 October 2016 Industry Update Takeaways from Platts Appalachian Oil & Gas Conference ________________________________________________________________________________________________________________ The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr; MCI (P) 057/04/2016. Kristina Kazarian Research Analyst (+1) 212 250-0717 kristina.kazarian@db.com Anthony Kit Associate Analyst (+1) 212 250-0519 anthony.kit@db.com Alley Liang Research Associate (+1) 212 2503632 alley.liang@db.com John Mackay Associate Analyst (+1) 212 250-5580 john.mackay@db.com Marcellus / Utica in Focus This week we attended the Platts 9th Annual Appalachian Oil & Gas Conference in Pittsburgh. As expected, discussion focused on the development of the Marcellus / Utica and in particular: infrastructure build out, pricing differentials and timeframe for improved netbacks, and the outlook for NGL resurgence. Regulatory Environment Increasingly Challenging If the focus 6-12 months ago was the weak commodity environment, attention now has completely shifted to the regulatory backdrop and the impact on the Northeast. The lagged timeline at the FERC (from 12-18 months to 18-24) is obvious, but the challenges are growing as environmentalists team up with anti-eminent domain groups – increasing their political power. Though all court challenges to FERC approvals have lost (emergency stays / rehearings), opponents are now focusing their efforts on state approvals– particularly water permits under the Clean Water Act. To this point, the Constitution case (formal arguments starting next month with a decision coming next year) will be a useful data point on how much worse the regulatory situation has become. Takeaway Capacity Build-Out Shifting to the Right What remains clear is that new takeaway is still crucial in the Northeast. Current capacity is ~22 bcf/d with Marcellus / Utica vols roughly flat this year (18 bcf/d and 3.5 bcf/d). Production estimates (WoodMac, others) suggest another 15-20 bcf/d could come by 2025, and midstream has responded with ~26 bcf/d of potential projects. That said, we think regulatory headwinds/other delays will lead to => at most 18 bcf/d being actually built: 1.8 in 2H16, 3.5 in 2017, 5.9 in 2018, 7.1 in 2019. There were fewer project specific takeaways except for Access Northeast – where SEP seems likely to offer a new plan. Outlook for Narrower Differentials More Challenging Near Term Beyond simply allowing incremental volumes, new takeaway is also critical to improving producer netbacks in the region. Despite the rally in Henry Hub futures recently (spot $2.69), Northeast prices have stayed largely unchanged: Dom South in the SW Marcellus sits at $1.44, Leidy in NE PA sits at $1.40. Short distances separate these from higher regional demand hubs: Dawn at $2.89 / Chicago at $2.77 to the west, NYC at $1.99 / Boston at $3.06 to the east – and new projects like Rover will be key to getting volumes to these premium hubs. On a related note, we flag that Union Gas, which controls the Dawn hub, was positive on both Rover and NEXUS vs. TRP Mainline – the latter's share going to Union should fall from 53% in 2015 to 19% in 2018. Resurgence of NGLs Real for the Northeast Lastly, we continue to think we need more ethane / propane takeaway as current capacity cannot clear the region. We think the key projects to watch are: 1) EPD/MPC's Centennial reversal, 2) SXL's ME2, and 3) KMI's Utopia. That said, while domestic ethane demand growth is expected (+600 mb/d by 2019), export dynamics are weaker as Europe appears saturated – we need Asia and LatAm in the interim. The situation is worse for propane, as spot export arbs remain low and a lower domestic demand ramp is expected. Distributed on: 26/10/2016 22:09:49 GMT

×