ANALYSIS OF CHANGING GAS HUB LIQUIDITY RESULTING FROM SURGE IN

MARCELLUS/UTICA SHALE GAS PRODUCTION

Bradford Leach, Benjamin Schlesinger, Ph.D. and John A. Neri, Ph.D.

IAEE-USAEE North American Conference Pittsburgh – October 28,

2015

Shale gas production has increased quickly in North America, undercutting costlier gas.

Dec-9

9

Dec-0

7

Dec-1

5

Dec-2

3

Dec-3

1

Dec-3

9

Dec-4

7

Dec-5

5

Dec-6

3

Dec-7

1

Dec-7

9

Dec-8

7

Dec-9

5

Dec-0

3

Dec-1

10

10

20

30

40

50

60

70

80

90

Marcellus/Utica (PA, WV, OH)

Haynesville (LA & TX)

Eagle Ford (TX)

Fayetteville (AR)

Barnett (TX)

Other US Shales

Rest of the US

Bcf

/day

2Source: EIA, BSA; state abbreviations indicate primary state(s); shale data re-aggregated in 2015..

Marcellus/Utica shales are now supplying about 1/4 US market.

Natural GasSupplies

(Dry)

Potential Produc-

tion, Bcm

Est. Recover-able, Tcm

Yamal 310-350 16.7

Bovanenkovo (alone)

220 4.9

Marcellus/ Utica

197 (Sept. 2015)

12.8

Qatar 159 (2013)

25.1

3

Source: EIA, Drilling Productivity Report, September 2015; resource data from http://www.eia.gov/analysis/studies/usshalegas/ (Northeast excl. Antrim); Yamal data from Gazprom, http://www.gazprom.com/about/production/projects/mega-yamal/, incl. explored and provisionally estimated; Qatar data from EIA, BP 2015 statistical review.

Jan-0

9

Aug-09

Mar

-10

Oct

-10

May

-11

Dec

-11

Jul-1

2

Feb-

13

Sep-1

3

Apr-1

4

Nov

-14

Jun-1

5 -

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Marcellus

Utica

Bcf/

day

Crude oil to Henry Hub gas price margins have tightened, but remain significant.

4Source: BSA 2015, from CME-NYMEX settlements at Closing 11 Sept. 2015.

Jan-

01

Jun-

02

Nov

-03

Apr-0

5

Sep-0

6

Feb-0

8

Jul-0

9

Dec-1

0

May

-12

Oct

-13

Mar

-15

Aug-1

6

Jan-

18

Jun-

19

Nov

-20

Apr-2

2$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Henry HubWTIBrent ActualsHenry Hub FuturesWTI FuturesBrent Futures

$/M

MB

tu

5

The US is now building 67 mtpa of LNG export capacity, but how much will actually flow? • US regulators have approved ‘a ton’ of LNG

exports:• DOE – 102.2 mtpa of non-FTA exports approved, plus FTA

• FERC – 77.5 mtpa of export plant approved

• At this point, the market, not regulators, will decide, based on global forces, price, diversity.

Source: BSA 2015, from BP 2014 Statistical Review.

75.5

24.8

23.1 18.5

15.8

14.1

12.6

10.6

7.8

34.7

2014 LNG Exports, mtpa

Qatar Malaysia Australia

Nigeria Indonesia Trinidad & Tobago

Algeria Russia Oman

All Others

Market expectations of oil price uncertainty have increased in recent months.

6

7

Shale gas production has reduced spot gas prices at most North American hubs.

Alberta, US$2.65

Rockies, $3.12

Southern California Gas,

$3.27

Source: BSA 2015, January 2015 hub prices from Platts Inside FERC’s Gas Market Report; note: Dominion refers to Dominion Appalachia (South Point), New England refers to Tennessee Gas Pipeline, Zone 6..

New England,

$11.67

Henry Hub, $3.19

Dominion Hub, $1.75

So. Texas, $3.08

WINTER 2015

8

Marcellus/Utica hub prices are deeply depressed – starved for demand.

Alberta, US$2.18

Rockies, $2.47

Southern California Gas,

$2.71

Source: BSA 2015, September 2015 hub prices from Platts Inside FERC’s Gas Market Report; note: Dominion refers to Dominion Appalachia (South Point), New England refers to Tennessee Gas Pipeline, Zone 6..

New England,

$2.54

Henry Hub, $2.64

Dominion Hub, $1.16

So. Texas, $2.56

SUMMER 2015

13.06 13.39

12.78

11.17

12.50

11.12 11.08

12.40 12.54 12.70

13.44 12.86 12.72 12.76

13.22 13.09

13.91 14.10 13.80 13.85 13.58 13.85

12.38 12.12

10.95

8.65 8.01

7.71

6.38 6.72

6.17

5.00

4.21 3.64 3.48

Federal GOM Gas Production, Bcf/d

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

23% 23% 24% 23% 24% 25% 26%28% 28% 27% 27% 27%

29%32%

37%

43% 44%47%

52%

65%

80%

86% 86%82% 81%

67%70% 70% 69% 68% 67%

65%62% 63%

65% 66% 66%64% 62%

59%

53% 51%48%

42%

30%

17%

12% 11%15% 17%

10%7% 7% 7% 8% 8% 10% 10% 9% 8% 7% 7% 7% 6% 5% 4% 5% 5% 6% 5%

3% 2% 2% 3% 2%

LA North, South and Offshore Natural Gas Production

NORTH SOUTH OFFSHORE

Source: LA Department of Natural Re-sources

Jan-

05

May

-05

Sep-0

5

Jan-

06

May

-06

Sep-0

6

Jan-

07

May

-07

Sep-0

7

Jan-

08

May

-08

Sep-0

8

Jan-

09

May

-09

Sep-0

9

Jan-

10

May

-10

Sep-1

0

Jan-

11

May

-11

Sep-1

1

Jan-

12

May

-12

Sep-1

2

Jan-

13

May

-13

Sep-1

3

Jan-

14

May

-14

Sep-1

4

Jan-

150

200

400

600

800

1000

1200

314

100

438

1

186170179127112

189239

429459

832

253

538

128123

538

154

466

308291

632

14799

240

336

481

135

336

255206

79

247284

151

528

839

625

538

385

625

1025

251

315

736

432461454

551

274

549

359

274215

279

387

132189

404

217276

504

170

359

504

156159

33

107

25

183

9548

171135

203171

30

378334273

80108150

778

523

52110

523

260240

403

213200

56

152

363

285

160134

285

123104

288

178

270

11589134156

12980

156

246251

151

239

50

203241

20

Platts Henry Hub Monthly Volumes From 2004-2015000's MMMBtu/Day

0

1

2

3

4

11

2

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22

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2

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2

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2

11

2

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2

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22

3

1

2

3

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2

111

22

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2

3

22

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2

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22

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3

2

1

2

11

3

2

1

3

Platts Henry Hub Monthly Tiers

Changing deal counts – Gulf versus Marcellus/Utica

Jan-06 Jan-150

100200300400500600700800900

1000

391

46

0

163

0150

0

306374

287

Marcellus/Utica

TCO Tennessee Z4/200 LineTransco Leidy Line Tetco M-2Dominion Appalachia

HSC Henry Hub420

440

460

480

500

520

540

560

516

466

20

50

Gulf Coast

Jan-06 Jan-15

Contact Info: bradleach@energyadvisoryservices.net203-501-7445Ben Schlesinger bschles@bsaenergy.com 301-951-7266www.bsaenergy.com

Benjamin Schlesinger and Associates, LLCThe Bethesda Gateway3 Bethesda Metro Center, Suite 700Bethesda, MD  20814Phone: (301) 951-7266 Fax: (301) 951-3381Visit us at www.BSAenergy.com

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