north america gas market outlook -...

North America gas market outlook

Trusted commercial intelligencewww.woodmac.com


2

Associated gas fueled large portion of growth since 2011

Without the growth in associated gas production driven by the tight oil boom, over 7 bcfd in today’s gas market would have to had been replaced with higher cost shale drilling or reduced demand, putting some pressure on natural gas prices.

10%

15%

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25%

30%

35%

40%

45%

50%

55%

60%

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5

10

15

20

25

30

Jan-

11M

ar-1

1M

ay-1

1Ju

l-11

Sep-

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ov-1

1Ja

n-12

Mar

-12

May

-12

Jul-1

2Se

p-12

Nov

-12

Jan-

13M

ar-1

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ay-1

3Ju

l-13

Sep-

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ov-1

3Ja

n-14

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-14

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-14

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4Se

p-14

Nov

-14

Jan-

15M

ar-1

5M

ay-1

5Ju

l-15

Sep-

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ov-1

5Ja

n-16

Mar

-16

May

-16

Jul-1

6Se

p-16

Nov

-16

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17M

ar-1

7M

ay-1

7Ju

l-17

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ov-1

7Ja

n-18

Perc

ent g

row

th f

rom

ass

ocia

ted

gas

Dry

gas

gro

wth

from

201

1 (b

cfd)

Non Associated Gas Associated Gas % Associated

Source: Wood Mackenzie

Associated gas fueled large portion of growth since 2011


3

What happens if associated gas production is weaker than expected?Long and flat shale gas new-drill curve will put a ceiling on lasting price changes

• This curve shows the amount of gas which could come on-line over one-year for operators with various required IRRs, basis to HH included. This assumes flat drilling levels across the year and could be higher if activity was front-weighted.

• Given the expected recovery in associated gas post-2017 and low-level declines of the current ~25 bcfd of conventional gas, this supply curve shows the gas market’s ability to quickly meet increases in demand at low pricing.

$0.00

$1.00

$2.00

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$6.00

0 2 4 6 8 10 12 14 16 18 20

$/m

mbt

u

bcfdTransport WCSB Rockies Mid-Continent Gulf CoastFort Worth Haynesville Utica SW Marcellus NE Marcellus


2018 New-drill gas supply* curve


4

0

1

2

3

4

5

6

0 1 2 3 4 5 6 7 8

2015

$/m

mbt

ubcfd

Northeast new-drill supply curve 2018

Well performance continues to improve rapidly across the Northeast

EURs in major Northeast sub-plays

0 5 10 15

Lean Gas Core

Southern Wet Gas

bcf

0 5 10

WV Rich Gas

SW Rich Gas

Rich Gas Core

Pittsburgh Area

Greene Dry Gas Area

bcf

0 10 20

SusquehannaCore

Bradford Area

bcf

20142015

Utica NE MarcellusSW Marcellus 2014 outlook

At Dominion



5

And a major expansion under way, but the non-winter and greenfield challenges have already led to delays…

Southeast

Committed pipe projects*

Millennium, Tenn. 300 leg,

Leidy line

Northern Access 2016 (Nov. 2017)

East-Side Exp. (Nov. 2015)Leidy SE (Dec. 2015)Atl. Sunrise (Sept. 2017)Atlantic Coast (Nov. 2018)MVP (Nov. 2018)

Atl. Sunrise (Sept. 2017)PennEast (Nov. 2017)

Constitution (Feb. 2017)New Market (Nov. 2016)NED (Nov. 2018)

Major (>300 mmcfd) projects target several major destination markets

Source: Wood Mackenzie North America Gas Service, PennWell

*Includes assumptions about SW Marcellus/Utica split for projects where shippers are not yet announced

Midwest

OPEN (Sept. 2015)Broad Run (Nov. 2015, Nov. 2017)Gulf Markets (Nov. 2016, Aug. 2017)Leach Express (Nov. 2017)Mountaineer Xpress (Nov. 2018)

U2GC (Aug. 2015)REX East to West (2015-2016)REX Zone 3 Enhancement (Dec. 2016)ET Rover (Apr. 2017)Nexus (Nov. 2017)

0123456789

10

2015 2016 2017 2018

bcfd

NE PennsylvaniaSW MarcellusUtica


6

SW Marcellus & Utica have better access to local markets and pipe, but more leverage to NGL recoveryBacklog drawdown keeps production robust while drilling activity is low

SW Marcellus & Utica pipe capacity and prod.SW Marcellus & Utica drilling outlook

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200

400

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20122013201420152016201720182019202020212022

Wel

ls

Completed from backlog New wells drilled


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35

Jun-

15Ja

n-16

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ar-1

7O

ct-1

7M

ay-1

8D

ec-1

8Ju

l-19

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20Se

p-20

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ov-2

1Ju

n-22

Jan-

23Au

g-23

Mar

-24

Oct

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-25

bcfd

Utica SW MarcellusTakeaway capacity Takeaway capacity - Fall 2015



7

-2

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10

2014 2015 2016 2017 2018 2019 2020

bcfd


Gas demand growth will accelerate in several sectors, but could global economic conditions threaten projects?A second phase of LNG projects is possible, and power growth depends on price

Canadian fundamentals

US GDP, coal fundamentals, policy

Global GDP, oil prices

Mexico energy policy and GDP

State policy, oil prices, US GDP

Global GDP, global gasUS demand growth relative to 2014

LNG

IndustryPower

Mexico

Heating

Canada

Power $2.75/mmbtu


8

Lower LNG growth in Asia challenges the second wave of North American export projects

China Gas Demand (2010-2025) Changes to China gas supply (H2 2014 vs H2 2015) China LNG Imports (2010-2025)

0

100

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400

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600

2010 2015 2020 2025

bcm

(@ 4

0 M

J/M

3)

H2 15 Total Demand H2 14 Total Demand

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

-25

-20

-15

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-5

0

5

CTG

, CM

M, C

BM

Tigh

t Gas

Pipe

d Im

port

s

Con

vent

iona

l

Shal

e

% C

hang

e in

202

0

Cha

nge

to C

hina

Gas

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ply

(bcm

@ 4

0 M

J/M

3)

2020 % Change in 2020

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80

2010 2015 2020 2025

Mtp

a(@

40

MJ/

M3)

H2 2015 LNG H2 2014 LNG



9

Western Canada becomes more challenged

Over 50% of US market growth through 2020 in West South

Central region (Texas, Louisiana, Arkansas, Oklahoma)

More competition from the Utica, and over 20 bcfd of pipeline

commitments out of the Northeast

Haynesville costs declines and geography make it a viable mid-

term competitor

Solar penetration in the US West reduces gas demand potential in

the power sector

Lower Pacific basin demand leaves only 1 major Canadian LNG project

viable next decade TCPL de-contracting nears and Midwest takes in more Northeast

supplies

WTI stays below $60 through 2017

$- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5

2015 2017 2019 2021 2023 2025

2015

Rea

l

Henry Hub ($/mmbtu)AECO ($/mmbtu)AECO (C$/GJ)

HH Below $3/mmbtu for 5 years


10

WCSB gas production starts to decline in 2016 and recovery is delayed until 2020s

WCSB production by province WCSB production forecast by key play

Source: Wood Mackenzie North America Gas ToolSource: Wood Mackenzie North America Gas Tool

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2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025bc

fd

Others Montney Duvernay Horn River Deep Basin

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Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17

bcfd

WCSB AB BC SK View from Oct 2015

• Backlogged wells from Alberta came online earlier than expected• Increased LNG-related activities from Petronas and Woodside• No winter disruption• Reduced rig forecast for 2016 and 2017


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(6.0)

(5.0)

(4.0)

(3.0)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

bcfd

Power

Transport

In the midterm, domestic growth dominates in Canada

Policy, Oil prices

CAN GDP, Renewable and carbon policy

US/CAN GDP, Oil prices

US GDP, Supply competition

Provincial Policy, CAN GDP

Global GDP, Global gas

Canadian demand growth relative to 2014

LDC

Source: Wood Mackenzie North America Gas Service

US exports

Industrial LNG


12

Net Canadian pipeline exports to the US will disappear by 2025

Canadian pipeline exports

(6)

(4)

(2)

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2

4

6

8

2014 2016 2018 2020 2022 2024

bcfd

Exports - West Exports - MidwestExports - East Exports - MaritimesImports - East Imports - MaritimesNet Exports

Source: Wood Mackenzie North America Gas Tool


13

LNG development slows, but low-cost WCSB supplies would still be developed even without Canadian LNG

WCSB LNG projects seeking 2016 FID WCSB production – no Canadian LNG

Source: Wood Mackenzie Source: Wood Mackenzie

PETRONAS “took FID” on PNW in June 15

conditional on environmental and political approvals

Douglas Channel halted due to lack of offtake agreement

Shell project has approvals – engineering and partner alignment

remains

Woodfibre waits on BC environmental approval

and conversion from MOU to SPA

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2016 2018 2020 2022 2024 2026

bcfd

Upside for piped exports

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2016 2018 2020 2022 2024 2026

bcfd

Piped exports

Domestic demand

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2016 2018 2020 2022 2024 2026

bcfd

Piped exports

Domestic demand

LNG exports


14

AECO’s premium over Station 2 persists in the near term given market access and liquidity

PNW basis outlook PNW price outlook

-$1.4

-$1.2

-$1.0

-$0.8

-$0.6

-$0.4

-$0.2

$0.0

$0.2

2015 2017 2019 2021 2023 2025

2015

Rea

l $/m

mbt

u

AECO Sumas Kingsgate Station 2

Source: Wood Mackenzie North America Gas Service, North America Gas Tool

$0

$1

$2

$3

$4

$5

2015 2017 2019 2021 2023 202520

15 R

eal $

/mm

btu

Henry Hub AECO Sumas Kingsgate Station 2


15

Key takeaways

Stronger well results from the US Northeast pushes back on WCSB supply in all traditional export markets except Pacific Northwest.

Weakened Henry Hub forecast pressures AECO basis and WCSB production as AECO prices are only high enough to allow incremental production from low-cost plays such as Montney and Deep Basin.

Western Canada could support one major LNG projects due to lower Pacific market demand but WCSB production would increase in the long term even without LNG exports.


16

Disclaimer

This report has been prepared for our clients by Wood Mackenzie Limited. The report is intended solely for the benefit of our clients and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.

The information upon which this report is based has either been supplied to us or comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.

Strictly Private & Confidential


17

Appendix


18

Curtailments, well backlog should keep northeast Pennsylvania close to capacityLong-term supply growth is predicated on continued pipeline investment

Northeast Pennsylvania pipe capacity and prod.Northeast Pennsylvania drilling outlook

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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Wel

ls

Completed from backlog

New wells drilledSource: Wood Mackenzie

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Jun-

15Ja

n-16

Aug-

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ar-1

7O

ct-1

7M

ay-1

8D

ec-1

8Ju

l-19

Feb-

20Se

p-20

Apr-2

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ov-2

1Ju

n-22

Jan-

23Au

g-23

Mar

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Oct

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Dec

-25

bcfd

NEPA Marcellus ProductionNEPA takeaway capacityNEPA takeaway capacity - Fall 2015



19

Northeast hedge positions offer short-term relief for someHedges kept many operators afloat in 2015, yet only 4.8 bcf/d hedged for 2016

Antero has an enviable Northeast position, on track to become the largest Marcellus producer by 2020

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Ant

ero

Gul

fpor

t

Rex

Ene

rgy

Eclip

seR

esou

rces

EQT

Ric

e

CO

NSO

L

Sout

hwes

tern

2015

gas

pric

e re

aliz

atio

ns (Q

1-Q

3) ($

/mcf

)

HedgedUnhedgedAverage NYMEX gas price

Source: Wood Mackenzie, Company Reported Information, NYMEX

Antero Resources

EQT

EQT


20

Reduced associated gas contribution doesn’t provide much price supportLess associated gas has minimal effect on HH pricing• Even with a much lower price outlook, gas plays will be able

to replace any type of significant decrease in activity in associated gas plays with only on average of $.15 to $.30 impact on pricing.

Base case oil production and price forecast• Below shows our base case oil production outlook used in

this analysis.

0

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8,000

10,000

12,000

L48

Oil

Prod

uctio

n (m

bod)

Re-frac/EOR Barnett HaynesvilleUtica Southern Marcellus NiobraraMid-Continent Bone Spring WolfcampEagle Ford Three Forks BakkenVertical


$-

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$4.00

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

HH

Pric

ing

($/m

cf)

$50 flat $65 flat Base Case



21

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Wood Mackenzie™, a Verisk Analytics business, is a trusted source of commercial intelligence for the world'snatural resources sector. We empower clients to make better strategic decisions, providing objective analysisand advice on assets, companies and markets. For more information visit: www.woodmac.comWOOD MACKENZIE is a trade mark of Wood Mackenzie Limited and is the subject of trade mark registrations and/or applications inthe European Community, the USA and other countries around the world.

north america gas market outlook -...

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