u.s. natural gas the search for equilibrium...strictly confidential u.s. natural gas the search for...

STRICTLY CONFIDENTIAL

U.S. Natural GasThe Search for Equilibrium

May 2019

Oliver Trpcic[[email protected]]

STRICTLY CONFIDENTIAL MACQUARIE

Global presence across key energy centers with financial and physical commodity capabilities

Group Overview

Macquarie’s Canadian Energy PlatformCommodities and Global Markets

Cargill Acquisition Cargill acquisition provides greater access to Eastern Canadian

end-user’s and utilities

Increased egress strategies on Alliance and TransCanada Pipelines

Large storage presence for Eastern Canadian natural gas storage

Dedicated structuring analyst to combine corporate finance solutions with hedging of underlying commodity exposure

Company Bcf/d

BP 21.2

Macquarie Energy 13.2*

Shell 10.0

Tenaska 9.8

ConocoPhillips 8.3

* Macquarie Estimates

Top North American Gas Marketers: Q4 2017(1)

By Wholesale Physical Volumes Sold (in Bcf/d)

Oil Natural Gas NGLsPhysical crude and product marketing and trading Crude oils, diesel,

gasoline, jet fuel, fuel oil

Financial options and derivatives:

Crude oil basis hedging(WTI, Brent, Dubai)

Crude differentials (WTS, Mid/Cush, LLS, Mars, WCC, WCS)

Physical natural gas marketing and trading Henry Hub & UK NBP

Basis locations

Financial options and derivatives:

Henry Hub & NBP

Most N.A. basis points

Optimization of storage and pipeline capacity

Physical and financialnatural gas liquids marketing and trading Mont

Belvieu/Conway

Ethane, propane, butanes, natural gasoline

Out to 48 months

Key

Sta

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rvic

esLe

ader

ship

Oliver TrpcicManaging Director,Co-Head, CanadianGas and Power Trading

Darren SlaterManaging DirectorCanadian Oil Trading

LARGEST MARKETER OF NATURAL GAS IN NORTH AMERICA

ACQUIRED CARGILL’S NORTH AMERICA POWER & GAS BUSINESS IN 2017

MARKETED CRUDE CANADA100 Kbbl/d

(1) Platts Q4 2017.

Craig FisherManaging Director,Co-Head, CanadianGas and Power Trading

Dylan JohnsonSenior Vice PresidentCanadian Oil Trading

2ND


In any commodity, the intersection of supply and demand is always trying to find equilibrium

The Search for Equilibrium


Equilibrium manifests itself in volatility of price movements

Source: Macquarie Energy LLC

Annualized 90 Day equal weighted price volatility

The Search For Equilibrium

0%

1000%

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6000%

Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 Jul-2015 Jul-2016 Jul-2017 Jul-2018

Aeco Vol






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6000%


Aeco Vol

Regulatory change on NOVA

services






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900%


Sumas Vol






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Sumas Vol

Westcoast Pipeline explosion






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SoCal Vol






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SoCal Vol

Aliso Canyon storage leak






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SoCal Vol

Aliso Canyon storage leak

SoCal pipeline issues (needles)






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DomS Vol



Source: EIA, Macquarie Energy LLC



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DomS Vol

Production growth






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7000%

8000%


Waha Vol






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Waha Vol

Associated gas production growth


Storage capacity relative to size of supply & demand is shrinking…

The Search for Equilibrium of Instability

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34

Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18

Storage Capacity as Multiple of Total Daily Supply+Demand


Both supply and demand have grown by ~25% since 2013, but storage capacity

has actually fallen


The Search for Equilibrium of Instability


Transportation bottlenecks

Appalachia

Upper Midwest

Southeast & Gulf

Permian

Midcon Producing


Average traded AECO Monthly Index volumes have collapsed


The trade community is stepping away…


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2014 2015 2016 2017 2018 2019

Billons of Cubic Feet Traded


New dynamics of gas market going forward

The Search for Equilibrium

• More frequent short-term price swings when storage limits are reached

• Basis dislocations to come more suddenly – plenty of transport capacity…until there isn’t

• Global gas supply/demand balances will matter – 100% utilization of export facilities is not a sure thing

• Aging infrastructure needs to be replaced/new infrastructure needs to be built

• Realized volatility is mis-priced, however the available pricing mechanisms are also limited

• Who can hold the Value @ Risk?


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u.s. natural gas the search for equilibrium...strictly confidential u.s. natural gas the search for...

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