bentek north american market overview & outlook...2008 q1 2010 q1 2011 q1 20 8 18 43 2,104 4,985...

1

BENTEK North American Market Overview & Outlook

To Illinois State UniversityInstitute for Regulatory Policy Studies

Springfield, ILOctober 30, 2012

2www.BENTEKENERGY.com

Agenda

Drilling Efficiencies and Oil & NGL Production Will Sustain Annual Growth of Gas Volumes

Demand Is Responding to Low Prices

Prices Will Be Low and Stable as Supply Continues to Overwhelm Demand

Changes in Intra-Regional Flow Dynamics Will Impact Local Prices, Particularly Out West

3www.BENTEKENERGY.com Source: BENTEK Cell Model

Massive Displacement Forcing Gas Into New Markets


Supply

5www.BENTEKENERGY.comSource: BENTEK Supply/Demand Balance History

U.S. Production Slows But Sustains YOY Growth

50

52

54

56

58

60

62

64

66

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Bcf

/d

2009 2010 2011 2012 YTD

2010 Avg: 57.1 Bcf/d

2009 Avg: 55.1 Bcf/d

2011 Avg: 61.6 Bcf/d

2012 Avg: 63.5 Bcf/d


9/+1

214/+133

42/+14

70/-6

14/+3

6/+0

36/+11

28/-2

31/+22

103/+65

6/-23

2/-1

260/+200

27/+23

6/-2

43/+25

24/+9

7/+4

Active rig count: October 5, 2012 / Change in rig count from Jan. 1, 2010

Rig Increases Dry Gas Focused Areas

Rig Increases Liquids-Rich/Oil Focused Areas

Rig Declines Source: BENTEK, October 2012

3/-9

95/+11

70/+11

42/+24

75/-34

16/-21219/+96

470/+251

43/-50

13/-10PICEANCE

CALIFORNIA

MICHIGANPOWDER RIVER

GREEN RIVER

WIND RIVER

OTHER ROCKIESWILLISTON

SAN JUANUINTA

OTHER APPALACHIAN

D-J

MARCELLUS WET

MARCELLUS DRY

UTICA

ILLINOIS

ARK FAYETTEVILLE

ARK WOODFORD

OFFSHORE

TX GULFEAGLE FORD

PERMIAN

ANADARKO

FT WORTH

AL-MS-FL

LA GULF

EASTTX

ARKLA

OTHER MIDCONTINENT

TX GULF

30/-99TOTAL

2006CHANGE

+716

Source: BENTEK Regional Production Monitors, September 2012

Massive Shift of Rigs to Oil & Liquids Plays


IRRs Shift Production to Oil/NGL-Rich Plays

89%Permian

Bakken56%

51%Niobrara

32%Uinta Cleve/Tonk98% Miss.Lime94%

Piceance4%

Eagle Ford 50%

Montney

16%

68%

Granite Wash

84%

Haynesville0%

Pinedale3%

Ark/Wood

1%Fayetteville

4%

Horn -1%WCSB

0%

Marcellus

7%

Source: Company Presentations, Quarterly Reports, and News Releases

Oil Play

NGL Play

Dry Gas Play


Numerous Plays Become Attractive Again at $4 Gas

Haynesville0%

Pinedale

3%

Ark/Wood

1%

Fayetteville4%

Horn -1%WCSB

0%

Marcellus

7%

Source: Company Presentations, Quarterly Reports, and News Releases

@ $5

@ $4

@ Current $

22%41%

16% 29%

8%19%

27% 43%


Drill Time(Days)

Wells Per Yr.Per Rig

Avg. LateralLength ( Feet)

30 Day Ave.Prod Rate

(Mcfd)

IP AdditionsPer Rig PerYr. (Mcf/d)

Drill &Complete

Costs ($MM)

2007 Q12008 Q12010 Q12011 Q1

208

18

43

2,104

4,985

1,006 $2.8

2,673

18,360

116,148

$2.6

Technology Gains Drive Gas ProductionSWN Energy

Fayetteville Shale

+137%

-58%

+166%

+8%

+138%

+533%

Source: Southwestern Energy Financials


0

50

100

150

200

250

300

0

2

4

6

8

10

12

14

16

18

2007 2008 2009 2010 2011 2012

Hor

izon

tal R

ig C

ount

Bcf

/d

Fayetteville Haynesville Marcellus Horizontal Rig Count

Shale Rig Counts Peaked in 2010 Yet Production Has Grown 8 Bcf/d Since 2010

Source: BENTEK Production Monitors


0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

History Forecast

Source: BENTEK Forward Curve Quarterly 2012.09.28

Associated Gas, Efficiencies, Stronger Prices Will Sustain Production Growth

+10 Bcf/d By 2017


0

2

4

6

8

10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bcf

/d

Net Exports To West Net Exports to Midwest Net Exports to Northeast

Historic Exports: 6.77 Bcf/dHistoric Decline: 0.67 Bcf/d

Forecast Exports: 4.29 Bcf/dForecast Decline: 0.78 Bcf/d

U.S. Substantially Less Reliant on Canadian Gas

Source: BENTEK Canadian Observer Suite and CellCast

History Forecast


Demand


-

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

Power ResComm Industrial Exports to Mexico Pipe Loss

Power, Industrial, Mexican ExportsSpur Demand Growth

Does not include forecast LNG exportsSource: BENTEK Forward Curve Quarterly 2012.09.28

+9 Bcf/d Vs. 2012History Forecast


Over 70 Industrial Demand Expansions Planned By 2017

Source: BENTEK Industrial End Users Report


Industrial Demand Forecast to Add 0.3 Bcf/d/year

-

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

History: BENTEK Supply/Demand Balance Analytic Report HistoryForecast: BENTEK Forward Curve Quarterly, 2012.09.28

Demand bottoms out with recession

Summer baseload has

since increased 1.3 Bcf/d

Winter & Summer to average 1.3

Bcf/d above 2012


Mexican Exports to Continue Rising

Up to 1 Bcf/d of Export Expansions By

2014

0

1

2

3

4

5

6

7

8

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

Mexican Demand

History Projected

0.0

0.5

1.0

1.5

2.0

2.5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

U.S. Exports to Mexico

History Forecast

Mexican Demand: SENERHistory: BENTEK Supply/Demand Balance Analytic Report History

Forecast: BENTEK Forward Curve Quarterly, 2012.09.28


YOY Gas Demand from Power Up 5 Bcf/d (23%)

10

15

20

25

30

35

40

Bcf

/d

5 Yr. Avg. 2011 2012

Source: BENTEK Supply/Demand Balance History

2012 YTD: 26.7 Bcf/dVs. 2011 YTD: +5.0 Bcf/dVs. 5-Yr YTD: +6.7 Bcf/d


-

500

1,000

1,500

2,000

2,500

3,000

0

5

10

15

20

25

30

35

40

Thou

sand

Ton

s Eq

uiva

lent

Bcf

/d

PRB CAPP NAPP Illinois Uinta Imports Other

Gas Prices Capable of Capturing Market Share

Source: EIA, BENTEK Power Burn Report

12-Month ForwardHH Avg$3.63

5.2 Bcf/d

2011 HH Avg$3.98

3.0 Bcf/d


New Gas-Fired Generation Will Boost DemandUnder Construction

Year MW

2013 8,254

2014 6,488

2015 1,350

2016 624

2017 85

Total 19,293

Gas Burn Equivalent

1.7 Bcf/d

Under Construction + Proposed Gas Burn

Equivalent

5.9 Bcf/d

Gas Burn Equivalent assumes all plants are combined-cycle running at 50% utilization with heat rates of 7.5.Source: Platts & BENTEK Generation Data


-

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

Supply Demand (No LNG Exports)

Tightening Balance May Support Near-Term Prices;Long-Term Supply Surplus Grows

Source: BENTEK Forward Curve Quarterly 2012.09.28

+0.2 +0.1 -0.3+1.9 +1.8 -0.3 -- -0.9 +0.8 +1.1


N.America Becomes Net LNG Exporter By 2016

(0.8)(0.4)0.00.40.81.21.6

Net LNG Exports (Bcf/d)

First Ex Q1 2016, Net Ex Q3 2016

Source: BENTEK Special Report “LNG Surge”


Regional Dynamics


Massive Displacement Forcing Gas Into New Markets


0

2

4

6

8

10

12

14

16

Bcf

/d

Northeast Production

Legacy Production Lean Marcellus Wet Marcellus Utica

Incremental 7.4 Bcf/d by 2016

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012

Bcf

/d

Northeast Inflows

Canada Midcon Southeast LNG

Marcellus to Remain Cheapest Gas Due to Production Growth and Takeaway Constraints

Source: BENTEK Northeast Production Monitor and BENTEK Cell Model


8

10

12

14

16

18

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bcf

/d

Alberta BC Other Montney Horn River Saskatchewan NWT NB NS

Actual Projection

Canadian Production Declines But Exceeds 12 Bcf/d

Source: BENTEK Canadian Production Monitor Monthly

Annual Production: 15.2 Bcf/dAnnual Decline: 0.52 Bcf/d

Annual Production: 13.1 Bcf/dAnnual Decline: 0.29 Bcf/d


Rockies Production To Stay Flat

0

2

4

6

8

10

12

Bcf

/d

DJ Other Piceance Powder River GR-O Uinta

Source: BENTEK Rockies Production Monitor

History Forecast


Anadarko Basin Drives MCP Growth

0

1

2

3

4

5

6

7

8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bcf

/d

Midcon Producing Production Forecast

Source: BENTEK Midcon Production Monitor


0.00.10.20.30.40.50.60.70.80.91.0

Bcf

/d

Williston Basin Expansions

Gross Production Flared Processing Capacity

ONEOK Garden Creek

ONEOK Stateline I

HESS Tioga Plant Expansion

ONEOK Stateline II

330 MMcf/d of Planned Processing Expansions Over Next Three Years

Expansions Will Support Bakken Growth

Source: BENTEK Midcon Production Monitor


Midcon Sources Gas From Other Areas

Market Share of Midcon Imports

MCP10%

Canada43%SE Gulf

23%

Rockies23%

Northeast1%

2007

MCP13%

Canada31%

SE Gulf32%

Rockies21%

Northeast3%

2012

Source: BENTEK Midcon Observer


Midcon Demand Stagnant

-

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bcf

/d

RCI - History Power - History RCI - Forecast Power - Forecast

+0.2 Bcf/d per year-0.3 Bcf/d per year

Source: BENTEK CellCast and Midcon Observer


Midcon Market Gas Power Demand Rising

Source: BENTEK Midcon Observer History and Energy Information Administration

-

10,000

20,000

30,000

40,000

50,000

60,000

0.0

0.5

1.0

1.5

2.0

2.5

3-Year Average 2011 2012 YTD

MW

Gen

erat

ed

Bcf

/d

Gas Burn Total Power Generation

Gas Burn:YTD: 1.99 Bcf/d

+0.75 Bcf/d above 2011 YTD+0.9 Bcf/d above 3-Yr YTD


-$0.25

-$0.05

$0.15

$0.35Tetco M3

-$0.25

-$0.05

$0.15

$0.35Chicago

-$0.25

-$0.05

$0.15

$0.35

SoCal

-$0.25

-$0.05

$0.15

$0.35Dominion S.

-$0.25

-$0.05

$0.15

$0.35Waha

$0.00$1.00$2.00$3.00$4.00$5.00

Henry Hub

-$0.25

-$0.05

$0.15

$0.35Opal

-$0.25

-$0.05

$0.15

$0.35Chicago

Supply Shifts and Production Growth Will Moderate Prices

Source: ICE/Clearport and BENTEK Natural Gas Price Matrix


-

2

4

6

8

10

12

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Bcf

/d

El Paso North El Paso South PG&E (Redwood)TransWestern (W.Thoreau) Kern (Veyo) Aggregate Capacity

CASW Inbound Pipelines Are At ~80% Capacity

Source: BENTEK West Coast Observer


-

2

4

6

8

10

12

2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

Total Flows Projected FlowsMexican Expansions (Fully Utilized) Forecast CA/SW Demand GrowthCapacity

Demand & Export Growth Will Test CASW Capacity

Source: BENTEK West Coast Observer, CellCast, and Forward Curve


0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12

Cas

h ($

/MM

Btu

)

PG&E SoCal Henry Chicago Transco Z6 FGT Z3

California Features Highest Demand Prices

Source: CME/NYMEX Clearport and BENTEK Natural Gas Price Matrix


Another Shift Looms With LNG Exports


AECO

2009 2010 2011 2012

-$0.44 -$0.49 -$0.32 -$0.42 Dawn

2009 2010 2011 2012

$0.32 $0.37 $0.39 $0.29Sumas

2009 2010 2011 2012

-$0.13 -$0.28 -$0.11 -$0.12

PG&E

2009 2010 2011 2012

$0.21 $0.16 $0.25 $0.33

SoCal

2009 2010 2011 2012

-$0.30 -$0.13 $0.07 $0.15

Waha

2009 2010 2011 2012

-$0.51 -$0.22 -$0.12 -$0.08

Henry Hub (Cash)

2009 2010 2011 2012

$3.92 $4.37 $3.99 $2.53

Dominion South

2009 2010 2011 2012

$0.31 $0.21 $0.12 $0.02

Tetco M3

2009 2010 2011 2012

$0.72 $0.74 $0.63 $0.22

Transco Z6

2009 2010 2011 2012

$0.95 $1.03 $0.99 $0.47NW Rox

2009 2010 2011 2012

-$0.82 -$0.47 -$0.23 -$0.17

Chicago (Nicor)

2009 2010 2011 2012

$0.00 $0.08 $0.12 $0.07

Basis Tightening Continent-Wide

2012 prices are average of year-to-date as of 2012.09.24


Price Outlook


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

U$/

MM

Btu

NYMEX BENTEK

Prices To Remain Range Bound Between $3 to $3.50

Source: BENTEK Market Call 2012.09.28NYMEX is 30-day average as of 2012.10.14


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2013 2014 2015 2016 2017

U$/

MM

Btu

NYMEX BENTEK

Significant Resistance at $5 Mark

NYMEX is last seven-day average as of 2012.10.14Source: BENTEK US Forward Curve 2012.09.28


Key Takeaways

Despite Weak Gas Prices Supply Will Remain Abundant

Structural Demand Growing But Not Pacing Supply

Basis Will Flatten Until LNG Exports Become Established

Until Then Gas Will Struggle to Break $5 Mark


BENTEK Energy

BENTEK is an energy market analytics company focused on the natural gas market and related energy sectors.

Rick MargolinDirect: [email protected]: BentekRickM

Or

Contact Any Analyst at 303.988.1320

DISCLAIMER. THIS REPORT IS FURNISHED ON AN “AS IS”BASIS. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT- ABILITY OR FITNESS FOR A PARTICULAR PURPOSE.RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BENTEK BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN,WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY.

bentek north american market overview & outlook...2008 q1 2010 q1 2011 q1 20 8 18 43 2,104 4,985...

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