David Givens Marcellus and Utica Changes April 2016

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Events

High impactMarcellus, Utica transform our gas supply routesDavid Givens28 April 2016

• We will discuss:

◦Shifting production patterns in Appalachia

◦Physical basis differentials keep changing

◦Pipeline expansions, new builds questioned

Northeast US gas continues to find new markets

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Events

Northeast shale output keeps growing

Production responds slowly to fundamentals

• Rig count vs. production comparison confounds

• Marcellus 2015 production was up by 11pc

• No signs of slowing in Utica

• Production expected to climb to 3.6 Bcf/d this month

• Most prolific well result: EQT’s 72.9mn cf/d

Rate of growth may start to slow in Northeast


EIA drilling productivity report is predictive

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Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 160

4

8

12

16

0

3,000

6,000

9,000

12,000

Marcellus daily production

Total Per rig

Bcf/d

mn

cf/d

New England basis starts to disappear


Dec 11 Dec 12 Dec 13 Dec 14 Dec 150

20

40

60

80

Tennnessee Gas Pipeline Argus daily indexes

Zone 4 Marcellus Zone 6 200 line

$/m

mBt

u

Ohio output may flatten after three years


Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 160

1

2

3

4

0

2,000

4,000

6,000

8,000

Utica daily production

Total Per rig

Bcf/d

mn

cf/d

Lebanon maintains slight differential


Mar 13 Dec 13 Sep 14 Jun 15 Mar 160

5

10

15

20

Ohio Argus daily indexes

Lebanon TGP zone 4 200 line

$/m

mBt

u

Appalachian basis widened as prices declined


Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 160.0

1.5

3.0

4.5

6.0

7.5

9.0

Argus Daily Indexes

Dominion South Henry Hub

$/m

mBt

u

Basis markets still assume contango


42491

42522

42552

42583

42614

42644

42675

42705

42736

42767

42795

42826

42856

42887

42917

42948

42979

43009

43040

43070

43101

43132

43160

43191

43221

43252

43282

43313

43344

43374

43405

43435

43466

43497

43525

43556

43586

43617

43647

43678

43709

43739

43770

43800

43831

43862

43891

43922

43952

43983

44013

44044

44075

44105

44136

44166

44197

44228

44256

44287

44317

44348

44378

44409

44440

44470

44501

44531

44562

44593

44621

44652

44682

44713

44743

44774

44805

44835

44866

44896

44927

44958

44986

45017

-1.5

-1.2

-0.9

-0.6

-0.3

0.0

Argus Marcellus forward curves

Tetco M-2 TGP Marcellus Leidy Line

$/m

mBt

u


Events

Pipelines delayed with weak energy prices

Heavy activity among developers, regulators

Col Gas Appalachia Tetco M-3 Transco zone 60.0

1,500,000.0

3,000,000.0

4,500,000.0

6,000,000.0

7,500,000.0

Average gas flow

14-15 avg 15-16 avg

Bcf/d

Northeast had low winter throughput


-8%

-23%

+1%

Region sees boom in pipeline construction



Parts of Northeast Energy Direct were cancelled


Access Northeast competes with Kinder project


Events

More Northeast gas reaches midcontinent, southeast

Better environment for new projects


REX westbound flows affected Nov-March basis Chicago ($/mmBtu)

• Nicor: 0.109• Peoples: 0.042• Nipsco: 0.067

Rex Zone 3 ($/mmBtu)

• ANR/Shelby: -0.035• Midwestern/Edgar: -0.030• NGPL/Moultrie: -0.034

Tetco Gulf Markets project uses Marcellus supply


◦1.5 Bcf/d capacity

◦On line in fourth quarter of 2018

◦Partners: Dominion, Duke Energy, Piedmont Natural Gas and AGL Resources

Atlantic Coast project is truly greenfield



• Rockaway delivery lateral: expansion of 625mn cf/d to Long Island, NY, completed Q2 2015

• Virginia Southside Expansion and Northeast Connector added 304mn cf/d since December 2014

• Leidy Southeast fully operational January 2016: 525mn cf/d from New Jersey to Alabama

• Atlantic Sunrise: 1.6 Bcf/d expansion and looping from Pennsylvania to South Carolina; FERC decision due 1/17

Transco has had extensive expansions, new build

More gas is being delivered in Transco Zone 5


• Significant bifurcation within index

• Delivery to stations 165-185 now cheaper than in Carolinas

• PRAs have different approaches◦ Platts◦ ICE

• New Argus “Transco Zone 5 north” index is option

Consultation occurring with market on Zone 5 indexes


Sabal Trail to take gas off Transco


• Well productivity makes it hard to determine when low rig count kicks in

• Pipelines can find markets for cheap gas

• Basis compression provides supply options

Conclusion: More of the same in Marcellus


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David GivensHead of Natural Gas & Power Services, North America

Email:Phone:Office:Web:

david.givens@argusmedia.com202-349-2891Washingtonwww.argusmedia.com

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David Givens Marcellus and Utica Changes April 2016