Natural Gas Outlook - May 2016

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Information about Natural Gas Outlook - May 2016

Published on May 19, 2016

Author: DavidDyerPG

Source: slideshare.net

1. Introduction Coal Forecasting Depends on…. 1. Natural Gas Industry 2. Steel Manufacturing

2. Coal vs. Natural Gas – Fuel Switching 0 5 10 15 20 25 30 35 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 90,000,000 100,000,000 110,000,000 US$/MMBTU Tons/month US Total Coal Production US Total (Current Monthly Level) US Total (Max. 12mo. Avg.) US Total (12 mo. avg) Regulatory Timeline Henry Hub Natural Gas Spot Price (Dollars per Million Btu) Annual Avg. Down 32.4% from the highs

3. Natural Gas: Production - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 GasProduction (MMcf/month) Production - By Type Shale Gas Wells Coalbed Methane Wells Oil Wells Conventional Gas Wells 29% 18% 49%

4. Natural Gas: Imports vs. Exports Projected -90.00 -40.00 10.00 60.00 110.00 160.00 BCF/month US Natural Gas Imports vs. Exports Net LNG Import/Export Net Pipeline Import/Export Net LNG & Pipeline Import/Export Pipeline LNG

5. Natural Gas: Consumption 0 200 400 600 800 1000 1200 BCF/month For Residential Consumption: For Electricity Generation: 2012 2013 2014 2015 2016 2017 Range: • From 22.1% (Jan. ‘15) • To 47.0% (Jul. ‘15) Range: • From 4.6% (Aug. ‘15) • To 33.5% (Feb. ‘15) 400 900 1400 1900 2400 2900 3400 BCF/month Total Natural Gas Consumption: 16.8% 11.7% 33.1% 3.3% 35.2% 2015 Natural Gas Consumption By Source: Residential Sector Commercial Sector Industrial Sector Transportation Sector Electric Power Sector

6. Natural Gas: Comparative Inventory Forecast -1,500 -1,000 -500 0 500 1,000 1,500 2,000 2,500 3,000 -4,000 -3,000 -2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 BCF,yearoveryear BCF,endofperiod U.S. Working Natural Gas in Storage billion cubic feet Year over Year Change Storage level deviation from average Source: Short-Term Energy Outlook, May 2016. Note: Colored band around storage levels represents the range between the minimum and maximum from Jan. 2011 - Dec. 2015.

7. Short Term Natural Gas Forecast 0.50 1.50 2.50 3.50 4.50 5.50 6.50 7.50 8.50 9.50 -1500 -1000 -500 0 500 1000 1500 HenryHubPrice (US$/MMBTU) YearoverYearInventory (BCF,endofperiod) Year Over Year Inventory vs. Price Comparative Inventory (YoY) Henry Hub Natural Gas Spot Price (Dollars per Million Btu) Historical CI Based Price Forecast Mar '16 $1.72 Forecast: $4.29 vs. EIA: $3.09 Forecast Polar Vortex (Feb '12) $5.99 Apr '12 $1.94 Prices are Also Very Well Correlated:

8. Natural Gas: Supply vs. Demand (100) - 100 200 300 400 500 600 700 800 1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 Balance (BCF/mo.12MMA) (BCF/mo.12MAA) Supply/Demand Balance NatGas Production + Net Imports - Consumption (BCF 12MMA) NatGas Consumption (BCF per Mo. 12MMA) NatGas Production + Net Imports (BCF 12MMA)

9. Natural Gas: Supply/Demand vs. Prices 1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 (BCF/mo.12MAA) Supply/Demand Balance & Price Correlation NatGas Production + Net Imports - Consumption (BCF 12MMA) NatGas Consumption (BCF per Mo. 12MMA) NatGas Production + Net Imports (BCF 12MMA) Henry Hub Natural Gas Spot Price (Dollars per Million Btu) Prices are Very Well Correlated:

10. Short Term Natural Gas Forecast -100 0 100 200 300 400 500 600 700 800 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 2,500 NatGasSupplyBalance (BCF/mo12MMA) (BCF/mo.12MMA) U.S. Natural Gas Supply Balance NatGas Production + Net Imports - Consumption (BCF 12MMA) NatGas Consumption (BCF per Mo. 12MMA) NatGas Production + Net Imports (BCF 12MMA) Henry Hub Natural Gas Spot Price (Dollars per Million Btu) Historical Supply Balance Based Price Forecast HenryHubPrice (US$/MMBTU) Polar Vortex (Feb '12) $5.99 Apr '12 $1.94 Mar '16 $1.72 Forecast: $4.05 vs. EIA: $3.09 EIA Projections $6.00 - - $4.00 - - $2.00 - - $0.00

11. Shor Term Forecast Summary Bottom Line: Nat-Gas prices are going up in the next 12- 18 months. EIA: $3.09 Me: $4.05-4.29

12. 0 5 10 15 20 25 30 35 40 45 TCF EIA Projections (without CPP) Shale Production NonShale Long Term Natural Gas Projections The Shale & Fracking Boom will have to continue for quite a while. Steep Decline Curves Capital Intensive Finite Resources Is that likely??

13. 0 5 10 15 20 25 30 35 40 45 50 BCF/day Shale Production per Basin Utica (OH, PA & WV) Marcellus (PA,WV,OH & NY) Bakken (ND) Rest of US 'shale' Eagle Ford (TX) Woodford (OK) Haynesville (LA & TX) Fayetteville (AR) Barnett (TX) Antrim (MI, IN, & OH) Natural Gas Peaking Already? - Still Growing - Still Growing - Peaked Nov. ’15 - Peaked Oct. ‘15 - Peaked Mar. ‘15 - Peaked Aug. ‘14 - Peaked Jan. ‘12 - Peaked Nov. ‘12 - Peaked Nov. ‘11 - Peaked Mar. ‘00

14. For the Boom to Continue, Price’s will have to go UP… Natural Gas Peaking Already? CAPEX is Declining

15. - 50,000 100,000 150,000 200,000 250,000 300,000 MMcf/month Year over Year Natural Gas Production YoY Marketed Production Natural Gas Peaking Already? Year over Year Production Already Declining. Growth Peaked Dec. ‘14 and… WHY is Production Decelerating??? WHY is CAPEX Declining???

16.  Shale Drilling is Capital Intensive  E&P’s have Deteriorating Credit Quality  Period of Easy Financing is Over “Drilling On Debt” CHK’s Debt Rated Caa2 (w/ negative outlook) Shale Boom = Debt Boom “Exxon Mobil Downgraded”  Held S&P’s top rating since 1930 -April 26, 2016

17. Debt Boom = Bankruptcy Boom 2016 Cumulative Filings “US Oil & Gas Bankruptcies Spike 379%” -CNN Money Feb. 11, 2016

18. Summary Short Term: 1) YoY Inventory suggest prices of $4.29 2) Supply/Demand Balance suggests prices of $4.09 3) YoY Production Already Declining Long Term: 1) Shale Boom Peaked for Most Basins 2) Period of Easy Money Over 3) Bankruptcies on the rise. 4) ROI’s Require Higher Natural Gas Prices

19. BOTTOM LINE: 1. $4 Natural Gas will lead to fuel switching (back to coal). 2. Therefore.. Coal will Bottom sometime in 2016. 3. And.. Retake Natural Gas as top Fuel source in 2017. 4. Beyond 2017.. Depends on Shale E&P “financing” and CAPEX. Outcomes

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