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/ ©2017 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED1

2017 VIEW OF THE NORTH AMERICAN ENERGY MARKETS

NAVIGANT’S ENERGY MARKET OUTLOOK

JANUARY 25, 2017

ROB PATRYLAK

MANAGING DIRECTOR

GORDON PICKERING

DIRECTOR

/ ©2017 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2 / ©2017 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2

DISCLAIMER

Notice Regarding Presentation

This presentation was prepared by Navigant Consulting, Inc. (Navigant) for informational purposes only. Navigant

makes no claim to any government data and other data obtained from public sources found in this publication

(whether or not the owners of such data are noted in this publication).

Navigant does not make any express or implied warranty or representation concerning the information contained in

this presentation, or as to merchantability or fitness for a particular purpose or function. This presentation is

incomplete without reference to, and should be viewed solely in conjunction with the oral briefing provided by

Navigant. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from

Navigant.


1. Introductions

2. About Navigant and the Navigant Energy Market Outlook (NEMO)

3. Power Market Outlook

4. Gas Market Outlook

5. NEMO Key Takeaways

AGENDA


INTRODUCTIONS

ROB PATRYLAKMANAGING DIRECTOR

GORDON PICKERINGDIRECTOR

DAVID WALLSMANAGING DIRECTOR


ABOUT NAVIGANT

AND NEMO


NAVIGANT AT A GLANCE


ENERGY PRACTICE GEOGRAPHIC PROFILE

Many North American locations and an expanding global footprint.

San Francisco

Vancouver, BC

Folsom

Los Angeles

Boulder

Austin Houston

Verona

Miami

Washington, D.C.

Atlanta

New York

Toronto Burlington, VT

Chicago

Ann Arbor

Hong Kong

Dubai

London

Doha

Vancouver

Burlington

Seattle

CharlottePhoenix

Philadelphia

Boston


MEGATRENDS THAT DRIVE POWER INDUSTRY TRANSFORMATION

The following megatrends1 underpin the industry transformation:

1. The power of customer choice and changing demands

2. Rising number of carbon emissions reduction policies and regulations

3. Shifting power-generating sources

4. Delivering shareholder value through mergers and acquisitions (M&A)

5. Regionalizing of energy resources

6. Merging industries, new entrants, and colliding giants

7. The emerging Energy Cloud: Replacement of old infrastructure and transition toward an increasingly decentralized

and smarter power grid architecture

The transformation includes a wide range of strategic, operational, technological, commercial,

environmental, and regulatory changes that are transforming the traditional strategies and business models.

1 Take Control of Your Future: Megatrends in the Utilities Industry

http://www.navigant.com/insights/library/energy/2016/utility-megatrends-tipping-points/


NAVIGANT ENERGY MARKET OUTLOOK (NEMO)

INTEGRATED POWER, GAS,

ENVIRONMENTAL MODELING

NODAL PRICING

FULL TRANSMISSION REPRESENTATION

BENCHMARKING TO CAPTURE MARKET

VOLATILITY

PLANT RETIREMENT AND RETROFIT

DECISIONS

ENERGY PRICE FORECASTS

GAS PRICE FORECASTS

ALL CAPACITY MARKETS

EMISSION ALLOWANCE PRICES

REC PRICES

REPORTS FOR 10 REGIONS IN THE US

SEMIANNUAL DATA SUBSCRIPTION

FEATURES PRODUCTS


POWER MARKET

OUTLOOK


KEY UPDATES IN THE 2017 OUTLOOK

• Changes in the industry outlook due to 2016 US election

- Removal of carbon pricing caused by the Clean Power Plan (CPP) from the Base Case (discussed further on

next slide)

- Updates to natural gas supply outlook

• Addition of New York’s Clean Energy Standard—50% renewables by 2030 goal

• Latest announced/planned generation additions and retirements

• Latest load forecasts

• Fresh look at all updated data


POWER MARKET OVERVIEW

• Incoming president and Congress will somewhat alter the view of the markets going forward, but near-term

market momentum, customer demands, state policy, and technological change are likely to continue despite any

changes at the federal policy level

• Removal of CPP from Navigant’s outlook means the economics for coal are better longer term but have little

impact on the near term

• Renewables and distributed energy resources (DER) continue to grow in areas with positive state policies and

decent renewable potential

• Energy efficiency (EE) is more impactful in states with effective policies and robust economics

• Navigant sees 117 GW of renewable additions and 137 GW of gas additions across North America over the next

20 years

- Compare to 153 GW of renewable additions and 140 GW of gas additions in a carbon regulation case

• Without carbon regulation, a larger portion of gas-fueled resources are simple-cycle—needed only for capacity

• Fewer coal plants are retired in current case, with 18 GW of coal likely to continue operation absent carbon

regulation

• Navigant expects to see 26 GW of DER and 46 GW of EE/demand-side management (DSM)


IMPACT OF REMOVING A CARBON REGULATION FROM THE OUTLOOK

Coal Retirements by Case

Over 5 GW of coal to remain operating over

the next decade

Gas prices remain low due to lower power sector demand and potentially higher supply due to the

administration change

Renewables driven more by state policies and economics only in

high potential areas

EE and DER continue to grow despite

administration change

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Base Case Carbon Case

MW

2017-2027 Announced Retirements 2017-2027 Age-based Retirements

2017-2027 Modeled Retirements


PJM

$-

$1

$2

$3

$4

$5

$6

$-

$10

$20

$30

$40

$50

$60

Ga

s P

ric

e (

201

5 $

/MM

Btu

)

LM

P (

201

5 $

/MW

h)

PJM Energy Price Comparison

PJM Indicative LMP - Base

PJM Indicative - Carbon

PJM Indicative Gas Price - Base

PJM Indicative Gas Price - Carbon


NEW YORK

$-

$1

$2

$3

$4

$5

$6

$-

$10

$20

$30

$40

$50

$60

Ga

s P

ric

e (

201

5 $

/MM

Btu

)

LM

P (

201

5 $

/MW

h)

NYISO Energy Price Comparison

Zone A LMP - Base

Zone J LMP - Base

Zone A LMP - Carbon

Zone J LMP - Carbon

Tennessee Z5 Gas Price - Base

Iroquois Z2 Gas Price - Base

Tennessee Z5 Gas Price - Carbon

Iroquois Z2 Gas Price- Carbon


CALIFORNIA

$-

$1

$2

$3

$4

$5

$6

$7

$-

$10

$20

$30

$40

$50

$60

$70

Ga

s P

ric

e (

201

5 $

/MM

Btu

)

LM

P (

201

5 $

/MW

h)

CAISO Energy Price Comparison

NP 15 LMP - Base

SP 15 LMP - Base

NP 15 LMP - Carbon

SP 15 LMP - Carbon

PG&E City-Gate Gas Price - Base

SoCal City-Gate Gas Price - Base

PG&E City-Gate Gas Price - Carbon

SoCal City-Gate Gas Price - Carbon


ERCOT

$-

$1

$2

$3

$4

$5

$6

$-

$10

$20

$30

$40

$50

$60

$70

Ga

s P

ric

e (

20

15

$/M

MB

tu)

LM

P (

201

5 $

/MW

h)

ERCOT Energy Price Comparison

ERCOT Indicative LMP - Base

ERCOT Indicative LMP - Carbon

ERCOT Indicative Gas Price - Base

ERCOT Indicative Gas Price - Carbon


INDICATIVE SUMMARY OF PRICE AND GENERATOR PROFITABILITY IMPACTS

• Removal of Carbon Regulation has implications for

both energy prices and generator profitability

• Energy prices average around 5% lower in natural

gas and renewable energy heavy markets like

CAISO and ERCOT, and about 15% lower in coal

influenced markets like PJM, MISO and SPP

• Profitability impacts on natural gas-fueled

combined cycle plants are modest, as the market

price increase from carbon regulation is equivalent

to the generation cost impact

• Coal plant profitability is improved without carbon

regulation, with dark spreads increasing by $8 to

$12 per MWh, on average. Increases in dark

spreads reach $24/MWh in later study years, in

coal dominated markets

Market

Energy Prices

(% Change)

Natural Gas

Spark-Spreads

($/MWh Change)

Coal Generation

Dark-Spreads

($/MWh Change)

PJM-East -14.6% -$1.57 $8.16

ISO-NE -9.4% $1.19 $12.33

MISO-IL -16.2% -$1.48 $8.16

CAISO -4.7% $1.68 $4.76

ERCOT -5.5% $1.05 $8.16

SPP -13.2% $0.14 $8.16


POWER FUELS

OUTLOOK


UNITED STATES AN EMERGING ENERGY SUPERPOWER

#1 Oil & Gas

Producer

#1 Condensate

Producer

#1 Refined Products

Exporter

#1 LPG Exporter

Major Coal

Exporter

Emerging Ethane

Exporter

#3 LNG Exporter (By Capacity Now in

Construction) Emerging

Petrochemical Exporter


HOME TO ABUNDANT AND WIDELY DISTRIBUTED

DOMESTIC NATURAL GAS RESOURCES

Select North American Shale Plays

(Sources: Navigant, Ventyx)


ABUNDANT RESOURCES HAVE SHIFTED MARKET DYNAMICS

Changes in North American Flows: Pre-Shale to Date (2008-2016)

(Source: Navigant analysis)

STRONG SUPPLY

• 2008 Northeast production near zero

• 2016 Northeast production 20.5 Bcfd

DISPLACED GAS

• Less flows from Canada to the United States

• Less flows from the Gulf to demand areas

EXPORTS

• New markets for displaced gas

• US pipeline and liquefied natural gas (LNG) exports

*Units in Mmcfd


RESOURCES ABUNDANT ENOUGH TO PROMOTE LNG EXPORTS BY SHIP

North American Proposed/Under Construction LNG Export Projects


25liquefaction

plants

proposed

3.1 Bcfd by 20220.8 Bcfd by 2022

8.6 Bcfd by 2022

8liquefaction

plants

proposed

20liquefaction

plants

proposed

(Canada and

US)


US LNG EXPORT OUTLOOK

• Two trains on stream in 2016 (1.38 Bcfd)

• Around 60 cargoes of LNG in 2016; most went to Asia and Latin America

• Three more trains between 2017 and 2019

Sabine Pass, LA

• Three trains under construction; two additional trains approved by the Federal Energy Regulatory Commission (FERC) in May 2016

• Department of Energy (DOE) export approval July 2016 (1.4 Bcfd)

• On stream 2018

Cameron LNG, LA

• Three trains under construction (1.7 Bcfd)

• One additional train filed to the FERC in May 2015 (0.9 Bcfd)

• On stream 2019

Freeport LNG,TX

• Two trains under construction (1.1 Bcfd)

• Three other trains planned

• On stream 2018

Corpus Christi, TX

• One train under construction (0.77 Bcfd)

• On stream 2017

Cove Point, MD

NAVIGANT FORECASTS• 10 Bcfd US LNG exports by

2022

• US LNG exports to represent

about 12% of US total NG

demand by 2022

• Other US LNG projects

appear promising


0

250

20

00

20

03

20

06

20

09

20

12

20

15

20

18

20

21

20

24

0

250

20

00

20

03

20

06

20

09

20

12

20

15

20

18

20

21

20

24

0

250

20

00

20

03

20

06

20

09

20

12

20

15

20

18

20

21

20

24

0

250

20

00

20

03

20

06

20

09

20

12

20

15

20

18

20

21

20

24

North America

South America

Africa

Middle East

Total Europe and Eurasia

Asia and Australia

bcm

bcm

bcm

bcm

bcm

bcm

0

250

20

00

20

03

20

06

20

09

20

12

20

15

20

18

20

21

20

24

0

250

20

00

20

03

20

06

20

09

20

12

20

15

20

18

20

21

20

24

* About 400 bcm/y of LNG are proposed in North America

LNG EXPORT CAPACITY EXPANDING IN NORTH AMERICA,

TO APPROACH CAPACITY IN MIDDLE EAST AND ASIA

Global LNG Export Capacity: 2000-2024

(Source: Navigant’s Global Natural Gas Outlook using the G2M2 global market model)


$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

Ap

r-05

Se

p-0

5

Fe

b-0

6

Jul-

06

Dec-0

6

Ma

y-0

7

Oct-

07

Ma

r-0

8

Au

g-0

8

Jan

-09

Jun

-09

Nov-0

9

Ap

r-10

Se

p-1

0

Fe

b-1

1

Jul-

11

Dec-1

1

Ma

y-1

2

Oct-

12

Ma

r-1

3

Au

g-1

3

Jan

-14

Jun

-14

Nov-1

4

Ap

r-15

Se

p-1

5

Fe

b-1

6

Jul-

16

Dec-1

6

(Real2

015$/M

MB

tu)

NG PRICES IN THE UNITED STATES

• On increased supply, NG prices have declined since 2008, which has lowered energy costs to US consumers in

all sectors

• Yet, NG prices have shown signs of recovery in 2016—in the future, how much higher?

Historical Henry Hub Natural Gas Prices

(Sources: Navigant analysis, Ventyx, ICE)

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

(Real2

015$/M

MB

tu)


0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011 2012 2015 2020 2025 2030 2035 2040

Bc

fd

US Natural Gas Supply Outlook

Shale

Non-Shale

27.6% of US production now comes from the Marcellus and Utica shale plays,

which is up from 0.2% of US production just 8 years ago Shale: 65% of US

production by 2040


WINTER 2017 OUTLOOK HIGHLIGHTS: US GAS SUPPLY


WINTER 2017 OUTLOOK HIGHLIGHTS: NORTHEAST SHALE

• Almost 55% of shale production growth has come from shale plays in the Northeast

• Northeast production is expected to continue to grow, increasing 84% by 2040

Northeast Shale Gas Production

(Source: Navigant Analysis/RBAC)

0

5

10

15

20

25

30

35

40B

cfd

Marcellus Shale Utica Shale


*Note: AEO includes tight oil with shale

After major upward

adjustment in 2016

(+33%), EIA AEO 2017 has

shale supply down by 8%

YOR over the term

• Curious!

Navigant’s Outlook again

shows supply abundance

35

45

55

65

75

85

2016 2020 2024 2028 2032 2036 2040

Bcfd

NCI Winter 2017 NCI Fall 2016 AEO 2017* AEO 2016*

WINTER 2017 OUTLOOK HIGHLIGHTS: SHALE COMPARISON

US Yearly Shale Production

(Sources: Navigant analysis, EIA)


$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

2005 2009 2013 2017 2021 2025 2029 2033 2037

(20

15

$/M

MB

tu)

35% price

rebound

WINTER 2017 OUTLOOK HIGHLIGHTS: PRICE GROWTH—HOW HIGH/FAST

Henry Hub Natural Gas Price Outlook



WINTER 2017 OUTLOOK HIGHLIGHTS: NAVIGANT VS. EIA PRICE

Henry Hub Price Comparison


$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

2016 2020 2024 2028 2032 2036 2040

(20

15

$/M

MB

tu)

NCI Winter 2017 AEO 2017 AEO 2016


-15

-10

-5

0

5

10

15

2000 2004 2008 2012 2016 2020 2024 2028 2032

Bcfd

Pipeline LNG

FORECASTED

WINTER 2017 OUTLOOK HIGHLIGHTS: A THRESHOLD EVENT

Net Imports US Lower 48


14.6 Bcfd

export

• By the end of 2016, the United States became a net exporter (by pipe and ship) of NG for the first time since

1957 (60 years ago)


CASE STUDY: NORTHEAST INFRASTRUCTURE

What happens when just 17% of

the takeaway capacity (pipeline) in

Appalachia (Marcellus/Utica) does

not come online?

INCREASED PRODUCTION

STRANDED GAS

PROPOSED PROJECTS

UNCERTAINTY

Appalachian

shale from 0%

to 28% of US

production

Appalachia had

traditionally

been a demand

region

22 Bcfd of

pipeline

expansions and

additions

proposed

Political and

regulatory

challenges;

although Trump

factor looms



CASE STUDY: INFRASTRUCTURE IMPACT ON NG PEAK PRICE

• A 17% (3.1 Bcfd) reduction in proposed takeaway capacity (pipeline) can increase peak day natural gas costs

by around $14 billion over the next 24 years

• The increase of annual natural gas costs under same situation would be a lot higher

Winter Peak Day Price Changes in Nearby Demand Areas


$5.00

$7.00

$9.00

$11.00

$13.00

$15.00

$17.00

Navigant Ref Case Reduced Capacity Case

20

15

$/M

MB

tu

2022

$5.00

$7.00

$9.00

$11.00

$13.00

$15.00

$17.00

Navigant Ref Case Reduced Capacity Case

20

15

$/M

MB

tu

2032


POWER FUEL OUTLOOK SUMMARY

• The North American NG market is in transition—many changes already, more to come

• Increasing demand and infrastructure challenges may drive real price escalation in NG prices, even with

abundant shale resources. Will 2016 gas price increases be a trend or merely a short term blip? Time will tell

• US NG supply security has promoted expanded gas use for electric generation

• Increased gas supply has grown the market for gas generally and holds for more growth in the future

• Inexpensive NG has spurred a revival in American manufacturing and fostered LNG exports that will continue to

shrink the trade deficit, strengthen the dollar, and bolster employment

• Supply assurance, even abundance, means that gas may play a larger role in the near- to midterm in response to

CO2 emissions assisting in addressing climate change—even though some stringent emissions regulations in

the long term could limit all fossil fuels

• The effects of the new administration stand largely unknown, yet early Trump camp pronouncements and

administration nominees appear to be positive/for NG and infrastructure—the clean fossil fuel

• In sum, Navigant sees a vastly different North American and global gas market, with expanding gas markets

generally highlighted by LNG exports and NG exports by pipe to Canada and Mexico


NAVIGANT ENERGY

MARKET OUTLOOK

KEY TAKEAWAYS


KEY TAKEAWAYS

• Incoming president and Congress will somewhat alter the view of the markets going forward, but near-term

market momentum, customer demands, state policy, and technological change are likely to continue despite any

changes at the federal policy level

• The effects of the new administration stand largely unknown, yet early Trump camp pronouncements and

administration nominees appear to be positive for NG and infrastructure expansion

• Renewables (117 GW) and DER (26 GW) continue to grow in areas with positive state policies and decent

renewable potential

• EE (46 GW) is more impactful in states with effective policies and robust economics

• Removal of the CPP from Navigant’s outlook means the economics for coal are better longer term but have little

impact on the near term

• Navigant sees 137 GW of gas additions, with a larger portion of gas-fueled resources being simple-cycle—

needed only for capacity—and fewer coal plants retired

• Increasing demand and infrastructure challenges may drive real price escalation in NG prices—even with

abundant shale resources

• Navigant sees expanding gas markets in North America, generally highlighted by LNG exports and NG exports by

pipe to Canada and Mexico


CONTACTS

ROBERT PATRYLAKManaging Director

Phone: 404.731.7802

Email: [email protected]

GORDON PICKERINGDirector

Phone: 916.631.3249


DAVID WALLSManaging Director

Phone: 781.270.8436


mailto:[email protected]



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