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David Givens Marcellus and Utica Changes April 2016
- 1. London Houston Washington New York Portland Calgary Santiago Bogota Rio de Janeiro Singapore Beijing Tokyo Sydney Dubai Moscow Astana Kiev Porto Johannesburg Riga Market Reporting Consulting Events High impact Marcellus, Utica transform our gas supply routes David Givens 28 April 2016
- 2. • We will discuss: ◦ Shifting production patterns in Appalachia ◦ Physical basis differentials keep changing ◦ Pipeline expansions, new builds questioned Northeast US gas continues to find new markets Copyright © 2016 Argus Media Ltd. All rights reserved.
- 3. illuminating the markets • World’s largest independently held energy markets PRA – 750 staff, 23 countries • Publish > 8,000 daily commodity price assessments + energy market intelligence • Recent acquisitions ◦ DeWitt, JJ&A (Petrochemicals) ◦ FMB (Fertilizers) ◦ MetalPrices, Metal-Pages • Coverage expansions ◦ US Natural Gas ◦ US forward curves • Services ◦ Price reporting and indexation ◦ Consulting ◦ Conferences • Indexation examples ◦ US crude oil ◦ US and European refined products ◦ US and European natural gas ◦ Global NGLs Argus Media: global, market-focused, independent Copyright © 2016 Argus Media Ltd. All rights reserved.
- 4. • 109 daily hub locations • 84 bidweek hub locations • 7 Canadian hubs included • Indexes determined based on volume- weighted average • Methodology approved by US FERC Argus publishes indexes for natural gas hubs Copyright © 2016 Argus Media Ltd. All rights reserved.
- 5. Market Reporting Consulting Events Northeast shale output keeps growing Production responds slowly to fundamentals
- 6. • Rig count vs. production comparison confounds • Marcellus 2015 production was up by 11pc • No signs of slowing in Utica • Production expected to climb to 3.6 Bcf/d this month • Most prolific well result: EQT’s 72.9mn cf/d Rate of growth may start to slow in Northeast Copyright © 2016 Argus Media Ltd. All rights reserved.
- 7. EIA drilling productivity report is predictive Copyright © 2016 Argus Media group. All rights reserved. 0 3,000 6,000 9,000 12,000 0 4 8 12 16 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 mncf/d Bcf/d Marcellus daily production Total Per rig
- 8. New England basis starts to disappear Copyright © 2016 Argus Media group. All rights reserved. 0 20 40 60 80 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 $/mmBtu Tennnessee Gas Pipeline Argus daily indexes Zone 4 Marcellus Zone 6 200 line
- 9. Ohio output may flatten after three years Copyright © 2016 Argus Media group. All rights reserved. 0 2,000 4,000 6,000 8,000 0 1 2 3 4 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 mncf/d Bcf/d Utica daily production Total Per rig
- 10. Lebanon maintains slight differential Copyright © 2016 Argus Media group. All rights reserved. 0 5 10 15 20 Mar 13 Dec 13 Sep 14 Jun 15 Mar 16 $/mmBtu Ohio Argus daily indexes Lebanon TGP zone 4 200 line
- 11. Appalachian basis widened as prices declined Copyright © 2016 Argus Media group. All rights reserved. 0.0 1.5 3.0 4.5 6.0 7.5 9.0 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 $/mmBtu Argus Daily Indexes Dominion South Henry Hub
- 12. Basis markets still assume contango Copyright © 2016 Argus Media group. All rights reserved. -1.5 -1.2 -0.9 -0.6 -0.3 0.0 May 16 May 17 May 18 May 19 May 20 May 21 May 22 $/mmBtu Argus Marcellus forward curves Tetco M-2 TGP Marcellus Leidy Line
- 13. Market Reporting Consulting Events Pipelines delayed with weak energy prices Heavy activity among developers, regulators
- 14. 0.0 1.5 3.0 4.5 6.0 7.5 Col Gas Appalachia Tetco M-3 Transco zone 6 Bcf/d Average gas flow 14-15 avg 15-16 avg Northeast had low winter throughput Copyright © 2016 Argus Media group. All rights reserved. -8% -23% +1%
- 15. Region sees boom in pipeline construction Copyright © 2016 Argus Media group. All rights reserved.
- 16. Parts of Northeast Energy Direct were cancelled Copyright © 2016 Argus Media Ltd. All rights reserved.
- 17. Access Northeast competes with Kinder project Copyright © 2016 Argus Media Ltd. All rights reserved.
- 18. Market Reporting Consulting Events More Northeast gas reaches midcontinent, southeast Better environment for new projects
- 19. REX westbound flows affected Nov-March basis Copyright © 2016 Argus Media group. All rights reserved. Chicago ($/mmBtu) • Nicor: 0.109 • Peoples: 0.042 • Nipsco: 0.067 Rex Zone 3 ($/mmBtu) • ANR/Shelby: -0.035 • Midwestern/Edgar: -0.030 • NGPL/Moultrie: -0.034
- 20. Tetco Gulf Markets project uses Marcellus supply Copyright © 2016 Argus Media Ltd. All rights reserved.
- 21. ◦ 1.5 Bcf/d capacity ◦ On line in fourth quarter of 2018 ◦ Partners: Dominion, Duke Energy, Piedmont Natural Gas and AGL Resources Atlantic Coast project is truly greenfield Copyright © 2016 Argus Media Ltd. All rights reserved.
- 22. • Rockaway delivery lateral: expansion of 625mn cf/d to Long Island, NY, completed Q2 2015 • Virginia Southside Expansion and Northeast Connector added 304mn cf/d since December 2014 • Leidy Southeast fully operational January 2016: 525mn cf/d from New Jersey to Alabama • Atlantic Sunrise: 1.6 Bcf/d expansion and looping from Pennsylvania to South Carolina; FERC decision due 1/17 Transco has had extensive expansions, new build Copyright © 2015 Argus Media Ltd. All rights reserved.
- 23. More gas is being delivered in Transco Zone 5 Copyright © 2016 Argus Media group. All rights reserved.
- 24. • Significant bifurcation within index • Delivery to stations 165-185 now cheaper than in Carolinas • PRAs have different approaches ◦ Platts ◦ ICE • New Argus “Transco Zone 5 north” index is option Consultation occurring with market on Zone 5 indexes Copyright © 2016 Argus Media Ltd. All rights reserved.
- 25. Sabal Trail to take gas off Transco Copyright © 2016 Argus Media group. All rights reserved.
- 26. • Well productivity makes it hard to determine when low rig count kicks in • Pipelines can find markets for cheap gas • Basis compression provides supply options Conclusion: More of the same in Marcellus Copyright © 2016 Argus Media Ltd. All rights reserved.
- 27. Copyright notice Copyright © 2015 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, the ARGUS logo, ARGUS MEDIA, ARGUS DIRECT, ARGUS OPEN MARKETS, AOM, FMB, DEWITT, JIM JORDAN & ASSOCIATES, JJ&A, FUNDALYTICS, METAL-PAGES, METALPRICES.COM, Argus publication titles and Argus index names are trademarks of Argus Media Limited. Disclaimer All data and other information presented (the “Data”) are provided on an “as is” basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party’s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law. David Givens Head of Natural Gas & Power Services, North America Email: Phone: Office: Web: david.givens@argusmedia.com 202-349-2891 Washington www.argusmedia.com
Editor's Notes
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- Marcellus shale production experienced a dramatic upward climb amid the increased use of hydraulic fracturing in the shale since 2010. Production there peaked at 16.2 Bcf/d in June 2015 and has since fallen off as natural gas prices have fallen by half. But 2015 production averaged 16 Bcf/d, up by 11pc from the year earlier. Rising production outpaced pipeline capacity, creating bottlenecks. But a handful of key projects put in place over the past few years have loosened those bottlenecks, and combined with overall lower weather-related demand and an increase in LNG and heating oil use in times of cold weather, have put downward pressure on Mid-Atlantic region prices. This is adding even more incentive to ship the gas out of Appalachia and towards higher demand markets to the west, south and far northeast. Utica production, on the other hand, shows no signs of slowing down so far. In December it averaged 3.1 Bcf/d and climbed by 2pc to 3.2 Bcf/d in January is expected to reach nearly 3.3 Bcf/d in February. It was the only field in the US to see output growth in January. As of July, the Marcellus and the Utica accounted for 85pc of shale gas production growth in the US. And shale basins now account for more than half of the US’ dry natural gas production. Most prolific well in the Utica to date is EQT’s 72.9mn cf/d well there. Consol drilled its first well in the dry-gas portion of the shale in early 2015, which reached flows of 61mn cf/d (17mn m³/d), making it the second most prolific.
- With prices so low, some projects may be in danger. National Fuel has postponed its 473mn cf/d Northern Access expansion project for a full year, or until November 2017. That project includes a 96mile pipeline from Pennsylvania to Erie County, NY and was quite costly.
- Kinder Morgan’s official word is that they’re advancing with the Northeast Energy Direct project, or NED, at 1.3 Bcf/d. But when asked pointed questions about NED by analysts on their earnings and analyst day calls, they said they are reevaluating every project in their backlog to determine viability and consider options such as JVs.
- And the project is in competition with Algonquin’s 900mn cf/d Access Northeast, scheduled to come on line in November 2018, just like NED. NED has had issues getting commitments, while Spectra’s project recently executed electric distribution contracts in Massachusetts equaling more than 40 percent of the 0.9 Bcf/d capacity designed for generators, and progress is being made in other states. Spectra anticipates state approvals for contracts later this year. Another project expected to have an impact on New England prices is 330mn cf/d Algonquin’s Incremental Markets project coming on line in November of this year. Last week in a FERC filing Algonquin said some facilities on that project are already ready to go, including a new compressor unit in Cromwell, Connecticut, and some looping pipelines so Algonquin Citygates prices may come under a little pressure from that soon. Nexus Gas Transmission would ship 1.5 Bcf/d of Appalachia gas from eastern Ohio to Canada. Planned in service in mid-2017. Spectra, DTE are developers. Significant public comment.
- Spectra’s Gulf Markets expansion would increase capacity to the Gulf Coast by 630mn cf/d. Phase 1 would provide 242mn cf/d in service this November and phase 2 would provide 386mn cf/d in service in August 2017. The project is backed by long-term agreements with five shippers. Nearly two-thirds of the capacity is connected to agreements for capacity at the Cameron LNG project on the coast of Louisiana, while the remaining capacity is contracted by Marcellus producers seeking new markets: Range Resources and EQT. The project is part of Spectra's effort to transform the long-haul Tetco system into a bi-directional gas conduit that can meet new demands of gas consumers and export terminals on the Gulf coast and provide an outlet for growing production in the northeast. And Texas Gas’ Northern Supply Access project would increase capacity from Ohio to Louisiana by 384mn cf/d. That project is targeted in service in April 2017.
- Atlantic Coast Dominion’s 1.5 Bcf/d pipeline would transport Marcellus and Utica gas from West Virginia south through central North Carolina, expected to come on line in the fourth quarter of 2018.
- Access South Tetco’s 601mn cf/d Access South pipeline would provide takeaway capacity from southwestern Pennsylvania to a delivery point in Attala County, Mississippi. Atlantic Sunrise Williams’ 1.7 Bcf/d Atlantic Sunrise pipeline should begin adding bi-directional flows and installing facilities to take gas out of Appalachia and into the southeast in the summer of 2017, and Cabot mentioned that as a line it is particularly expecting to improve its realized price this year. The producer intends to ramp up production when it comes on line.
- Sabal Trail FERC just approved this earlier this month. Spectra’s 516-mile, 1.1 Bcf/d project from a connection with Transco in Alabama to Orlando, Florida. Even though it’s not specifically connected to Appalachia, growing population and demand in Florida will take a lot of gas off of Transco, and this project will be fed primarily by onshore production from Transco.