north american shale gas boom may 2012
DESCRIPTION
Slide deck by David Givens for presentation on how shale gas production has changed natural gas transportation markets in North America. Givens is head of natural gas and power services for Argus Media in Washington, D.C.TRANSCRIPT
London, Houston, Washington, New York, Portland, Calgary, Santiago, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Hanover, Porto and Johannesburg
Energy and commodity price benchmarking and market insights
North American shale boom drives new challenges for transport sector
David GivensMay 2012
Who is Argus?
• Report prices globally foro Gaso Powero NGL & LPGo Emissionso Coal and cokeo Refined productso Crudeo Fertilizers
• Over 400 staff globally with numerous offices• Rapid growth in spot and term contract
indexation, swap market indexation
Argus Media
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Washington
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New York
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Beijing
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Argus Natural Gas Americas
• Abundant pipeline capacity from shale plays• Firm transportation devalued in benign
regulatory environment • Crude, NGL production drives gas output• Basis narrows*, except in US Northeast
* Except in abnormal weather
Takeaways
Gas, crude and NGL fundamentals
US crude, gas production rising
Dec-08145
155
165
175
185
195
1,400
1,550
1,700
1,850
2,000
2,150Crude production vs gas
Crude Gas
'000 b
l/month
Tcf
/month
Three years of divergence
Dec-08 Oct-09 Aug-10 Jul-11 May-120.0
5.0
10.0
15.0
20.0
25.0
US crude, gas Btu comparison
Henry Hub ASCI
$/m
mB
tu
NGL prices rise relative to gas
Dec-08 Oct-09 Aug-10 Jul-11 May-1250
100
150
200
250
1.5
3.0
4.5
6.0
7.5Propane and butane vs gas
Mt Belvieu propane Mt Belvieu butane Henry Hub gas
¢/U
SG
$/m
mB
tu
8 May, 2012$/mmBtu
• Value of natural gas vs. splitting CH4 into NGLs
• Each NGL is assumed a representative % of barrel
• Each NGL distinct heating value
• Fuel used to frac (shrink)
• Btu value of some NGLs weaker recently
Fractionation spread
Seen in Eagle Ford, Bakken
Midstream paradise
4-Jan 3-Feb 4-Mar 3-Apr 3-May0.5
1.5
2.5
3.5
4.5
5.5
Mont Belvieu fractionation spreads
Non-LDH (Non-TET) Ethane PropaneNormal Butane Iso-ButanePentanes Plus
$/m
mB
tu
Possible ethane rejection
4-Jan 3-Feb 4-Mar 3-Apr 3-May0.5
1.5
2.5
3.5
4.5
Conway fractionation spreads
Ethane-Propane Mix Propane Normal ButaneIso-Butane Pentanes Plus
$/m
mB
tu
NGL fracs roll up to high margins
Continuing growth
Dec-0818,000
21,000
24,000
27,000
30,000
33,000
Ethane-ethylene production
Source: EIA
'000 b
l
Price/mmBtu for 15pc ROR
• SW Marcellus, wet: $1.85• SW Marcellus, dry: $3.19• NE Marcellus, dry: $3.60
Source: LyondellBasell
• “Super Rich Marcellus” ROR: 55pcSource: Credit Suisse
Low breakevens, high RORs narrow basis
• Shale plays drive midstream oil pipelining:o Bakkeno Eagle Fordo Permian Basin
• Light sweet imports into US should continue to drop and eventually even disappear altogether
Crude pipeline projects boom
What does it mean for US natural gas?
• No requirement to update gas pipeline tariff • No “major” FERC rulemakings in 20 years*• New pipeline tariffs are negotiated• New construction weighted toward incremental
pricing
* Order 712
US natural gas regulatory fundamentals
• Pipeline tariffs disconnected from markets• Producers subsidized bullet pipes from shales• Gas, storage everywhere devalues firm
transport• All regions have adequate gas• Basis spreads do not support transport costs • Generic FERC policy considered to restructure
tariffs on legacy pipes due to shale
Recent dynamics
• FERC Order 712 (2008)o Removed price caps on short-term
capacity releaseo Ever-increasing capacity release
volumeso Facilitated Asset Management
Agreements (AMAs)
One reason marketers stay profitable today
“Shale gas in the middle of long haul pipelines presents opportunities to segment more capacity and release more capacity.”
Steve Hinton, Engineering Director, Skipping Stone (Capacity Center)
What the future holds
“Our industry has evolved toward a market-driven model.”
Donald F. Santa, president, Interstate Natural Gas Association of America (and FERC commissioner 1993-1997)
The bottom line
• Traditionally served by gas patch• More shale plays exist• Pipeline capacity turnback• Some constrained burnertip markets• Shale gas + capacity release = underutilization• Backhaul prospects everywhere
o Tetcoo Transcoo Columbiao Tennessee
Impact on East markets
• Load factor dropping south of Marcellus interconnects
• Volumes climbing east of compressor station 219
• 300 line was flowing east to west at one point last year
• “Non-straight fixed variable” rates in market zones 4 through 6
Tennessee Gas Pipeline 2011 rate settlement
Tennessee Gas Pipeline in northeast states
TGP zone boundaries Pipeline location
Traditional Boston-Gulf Coast spreads
2009 2010 20110.00
0.75
1.50
2.25
3.00
0.45 0.43 0.5
1.10
2.55
1.03
Tennessee Z6 minus 800 leg
April-Oct Nov-Mar
$/m
mB
tu
Effect on Columbia system
2009 2010 20110.05
0.10
0.15
0.20
0.25
0.160.15
0.12
0.21
0.18
0.08
Columbia App minus Onshore
April-Oct Nov-Mar
$/m
mB
tu
The last great gas market
Jan-09 Aug-09 Apr-10 Nov-10 Jun-11 Feb-120
3
6
9
12
15Iroquois Zone 2 basis to Henry
$/m
mB
tu
Hot Gulf Coast summer 2011
2009 2010 20110.00
0.07
0.14
0.21
0.28
0.01
0.06
0.14
0.17
0.240.23
Chicago minus ANR SE
April-Oct Nov-Mar
$/m
mB
tu
Traditional Midcontinent winter basis
2009 2010 20110.05
0.10
0.15
0.20
0.25
0.30
0.08
0.11
0.17
0.27 0.29
0.23
Chicago minus NGPL South Texas
April-Oct Nov-Mar
$/m
mB
tu
• Fewer shales, less storage
• Weather, capacity issues major drivers
• Summer gas basis expected tight with SONGS outage
• Effects of Ruby, Rockies Express
• GTN tariff amendment to flow gas north
• GTN Transmission firm transport 33c/mmBtu
• Northwest Pipeline firm transport 44c/mmBtu
Western market impact
Western basis volatility
2009 2010 20110.00
0.09
0.18
0.27
0.36
0.11
0.05
0.190.19
0.0800000000000001
0.320000000000003
SoCal border minus El Paso Permian
April-Oct Nov-Mar
$/m
mB
tu
Canadian deliveries down last year
27-Jul 9-Aug 22-Aug 4-Sep 17-Sep 30-Sep0
500
1,000
1,500
2,000Ruby, GTN flows at Malin
Ruby GTN GTN 2010
mn c
f/d
Source: Ruby, GTN pipelines
Malin premium to Opal has fallen
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11-1.0
-0.5
0.0
0.5
1.0Malin-Opal basis
$/m
mB
tu
Marcellus pushes REX supply west
2009 2010 20110.09
0.18
0.27
0.36
0.450.42
0.27
0.14
0.35
0.15 0.14
Malin minus Opal
April-Oct Nov-Mar
$/m
mB
tu
REX versus Marcellus
April-Oct Nov-Mar0.1
0.2
0.3
0.4
0.5
0.6
0.7 0.650000000000005
0.320000000000003
0.330000000000003
0.15
Clarington minus Cheyenne
2010 2011
$/m
mB
tu
Winter gas demand in Northwest
Jan Feb Mar Apr May Jun Jul Jul Aug Sep Oct Nov Dec-2
0
2
4
6Sumas daily cash basis
2009 2010 2011
$/m
mB
tu
Lower pressures vs. Ruby start up
Jan Feb Mar Apr May Jun Jul Jul Aug Sep Oct Nov Dec-1.50
-0.75
0.00
0.75
1.50PG&E gates daily cash basis
2009 2010 2011
$/m
mB
tu
Breakout years ahead?
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
0
6
12
18
24
30US Gas Consumption
Source: EIA
Tcf
/yr
• Plentiful US gas and transport capacity; basis does not support tariffs
• Capacity release volumes keep growing• Btu values of crude, NGLs keep production high• East: backhauls, displacement• Western markets reveal more constraints
Takeaways
Any questions?
David GivensHead of Gas & Power, [email protected]+1 202 349 2891www.argusmedia.com