Natural Gas and the Convergence of Change

Spring Accounting ConferenceMay 2017

Richard Meyer, DirectorEnergy Analysis and StandardsAmerican Gas Association

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Energy in the US ischanging

Record year for natural gas consumption, storage, & power generation.

US energy exports are on the rise.

Record year for US solar installations.

Carbon dioxide emissions down to a 25-year low.

Consumers are spending less of their incomes on energy than ever.

This kids book light bulb is energy efficient.

Even our perceptions of energy are changing in subtle ways.

(Still not an LED though)

We’re getting more sophisticated looking for, producing, and

distributing new energy sources.

PresenterPresentation NotesChristopher uses TAMI — tactical analysis mapping integration — to track data across PG&E's gas system.

Employees in PG&E's gas control system monitor gas flows and pipe pressures, among other things.

https://www.snl.com/web/client?auth=inherit#news/article?id=38905042&keyproductlinktype=6

The rest of the world is looking to the US for new supplies of hydrocarbons, especially natural gas.

Sabine Pass, Image from Bechtel

However, there are different visions for domestic energy policy

“It is very clear that we cannot afford to expand infrastructure and reliance on fossil fuels, including gas.”

“At the same time, we do need to ensure that coal energy is not backfilled with gas.”

SNL Interview, Daily Gas Report, Lena Moffitt, Beyond Dirty Fuels Campaign Director, Sierra Club, August 19, 2016.

Natural gas market

PresenterPresentation NotesStunning new image taken with the new GOES-16 weather satellite that was just launched.

Natural gas prices continue right down the fairway.

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20152016

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Dollars per Million BTU

Daily Natural Gas Prompt Month Futures Price at Henry Hub

Price Range2009-20122017

PresenterPresentation Notes

Poll Title: What will be the average price of natural gas at Henry Hub for 2017?https://www.polleverywhere.com/multiple_choice_polls/C2nxDgk9X42MRiG

Average so far is $3.10

EIA Expects Natural Gas Prices to be Higher in 2017-2018 than in

2016

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Inflation Adjusted Prices to Commercial Customers the Lowest since the Ford Administration

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02468

10121416

1967 1974 1981 1988 1995 2002 2009 2016

Natural Gas Prices to Commercial CustomersReal (Dec 2016$) Forecast

EIA STEO

$7.42lowest

since 1976.

Source: Energy Information Administration, Short-Term Energy Outlook (Dec. 2016)

PresenterPresentation NotesAn average commercial natural gas customer’s utility bill was $400 in 2015 – the lowest since records began in 2003.

Strong exports & power generation offsets lower heating loads in 2016.

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Source: Bentek Energy LLC

(1.5) (1.0) (0.5)

- 0.5 1.0 1.5 2.0

Exports PowerGeneration

Industrial Res/Comm Total

US Natural Gas Demand Change 2015-16 (Bcfd)

Natural gas production steady, flat

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

BcfdDaily Dry Natural Gas Production

US Lower-48

2013-2015

2016

2017

What’s next for natural gas? Rig counts are again on the rise.

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Oil Rigs +121%

Source: Baker Hughes

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100

200

300

400

500

600

700

800

U.S. Oil & Natural Gas Rig Count

OilGas

Gas Rigs +111%

Significant new takeaway capacity anticipated late 2017 into 2018.

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Existing App Basin takeaway capacity

Additional planned takeaway capacity

Appalachian basin takeaway capacity, Bcfd

BNEF

PresenterPresentation NotesThe Appalachian region of Ohio, Pennsylvania and West Virginia are home to the Utica and Marcellus shale plays. These three states currently produce 22.2 billion cubic feet (Bcf) of gas per day, filling the 22.5Bcfd of takeaway pipeline capacity out of the region. To ease this constraint, many pipeline projects are underway to move gas out of this region and into markets.This report outlines the projects that plan to come online in the next few years. These will allow an additional 16Bcfd of gas to flow out of the region by the end of 2018.

Sabine Pass Export Breakdown by Country 2016 (Bcf)

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Source: Bloomberg NEF.

PresenterPresentation Notes184 Bcf total in 2016.

Already in two months, through February, 103 Bcf was shipped.

ArgentinaBrazilChileChinaMexicoIndia

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How much US LNG can the global market absorb?Maybe not much .… for now.

Global LNG Supply and Demand Balance (MMTPA)

Source: Bloomberg New Energy Finance, Poten & Partners

0100200300400500600700800900

1,000

2008

2009

2010

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2015

2016

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2018

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2020

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2025

OtherNorth AmericaRussiaEast AfricaWest AfricaAustraliaNorth AmericaAustraliaOtherRussiaWest AfricaNorth AfricaIndonesiaMalaysiaQatarDemand

Pre-

FID

O

pera

tiona

l, un

der

cons

truc

tion

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post

-FID

PresenterPresentation NotesLooking towards 50 Bcfd of global LNG supply

Nearly 40 of demand.

Becomes a story of east Asian demand. Japan. China. Will the growth materialize. And questions:

Does economic growth in Asia spur more natural gas demand?Will environmental concerns and a push towards switching to natural gas create new demand?

Some 133MMtpa of new supply capacity will be online during 2017-20, which will lead to an oversupply that peaks in 2020, when supply exceeds demand by 131MMtpa. This, coupled with low oil prices (despite the recent OPEC deal), have continued to force the world’s oil and gas majors to shelve their plans on developing new LNG export projects. Less than 40MMtpa of capacity is expected to receive FIDs before 2020. Meanwhile, some old projects will retire in the period. These will lead to little growth or even a marginal decline in the world’s LNG export capacity in this period.The global LNG demand will grow 62%, or a CAGR of 3.5%, to reach 422MMtpa by 2030. The LNG export project developers will need to make sufficient FIDs by 2020 to prevent a supply shortage which may start with 24MMtpa in 2026 and rise to 52MMtpa by 2030.

United States – Net Energy Exporter?

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US Electricity Sector Fuel Mix

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Coal-776

TWh/yr

Power Demand

-78 TWh/y

Gas 484 TWh/y

Renewables 257 TWh/y

-800

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400

600

800TWh/yr

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500

1,000

1,500

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2,500

1990 1995 2000 2005 2010 2015

TWh/year

Coal

Natural Gas

Nuclear

Renewables

Oil

Change in generation 2007-2016Generation by Source

Source: EIA

Natural Gas-Fired Generating Capacity Expected to Increase in 2017-2018

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Numerous solar and wind generation projectsadded in 2017.

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Source: Energy Information Administration and Bloomberg New Energy Finance.

PresenterPresentation NotesAccording to EIA data, ~5.5 GW of new solar capacity will have come online between November 2016 and September 2017. Most of the new solar capacity will be in California, North Carolina, Texas, Arizona, Florida and Nevada. These states will contain 75% of the expected new solar capacity.To estimate the gas displacement figure from solar new-builds, we: 1) analyzed recent monthly solar generation and capacity factors in these states (from EIA-923 and EIA-860M); and 2) applied estimated forward heat rates from CFVL on the terminal. We expect the increase in new solar output alone will displace an average of 409Mmcfd of gas during the 2017 injections season. On a monthly basis, the forward heat-rates indicate that incremental solar capacity will displace an average of 553Mmcfd of gas-based generation in July and August across the Lower-48.

According to EIA data, ~5GW of new wind capacity will have come online between November 2016 and September 2017. We excluded some of the states where gas generation is a small percentage of overall generation so little or no gas displacement is expected Most of the new wind capacity will be located in the Texas panhandle and in Oklahoma. Texas will increase new wind capacity by ~2.3GW (45.3%) of total new wind projects’ capacity, while Oklahoma will have 573MW (11.4%).We expect that the increase in new wind generation alone will displace an average of 414Mmcfd of gas during the 2017 injection season. Using CFVL ’s forward heat-rates, we estimate the new wind capacity alone will displace an average of 506Mmcfd of gas-based generation from July-August across the Lower-48.

Renewables replace significant volumes of natural gas for power generation in 2017.

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Source: Bloomberg New Energy Finance.

Estimated year-on-year gas burn displacement from stronger renewable output MMcfd

Is there other trouble on the horizon?

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PresenterPresentation Notes“Natural gas-fired power plant closures should not be viewed in isolation from sales of naturalgas-fired assets in organized electricity markets. Bankruptcies in California and power plant sales elsewhere in the country should not be viewed in isolation. While the product of dynamics in different organized markets, both developments reflect a prevailing view that market design problems for gas-fired generators are beginning to manifest. “

Energy-related CO2 emissions fall below 5.2 billion metric tons in 2016 year, lowest since 1992.

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0

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2,000

3,000

4,000

5,000

6,000

7,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

US Carbon Dioxide Emissions from Energy Consumption(Million Metric Tons)

2016 emissions were lowest since 1992

EIA Monthly Energy Review

PresenterPresentation NotesEIA estimates that energy-related emissions of carbon dioxide decreased by 2.7% in 2015. Emissions are decreased by 1.6% in 2016. These forecasts are sensitive to assumptions about weather and economic growth.

PresenterPresentation Notes

Poll Title: Relative to 2016, US energy-related carbon dioxide emissions in 2017 will:https://www.polleverywhere.com/multiple_choice_polls/dYChJNlDcL73ogn

EIA sees a 0.7% Decline in 2017 (Stays Flat)

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0

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2,000

3,000

4,000

5,000

6,000

7,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

US Carbon Dioxide Emissions from Energy Consumption(Million Metric Tons)

EIA sees a 0.7% decline

in CO2 emissions in

EIA Monthly Energy Review

PresenterPresentation NotesEIA estimates that energy-related emissions of carbon dioxide decreased by 2.7% in 2015. Emissions are forecast to decrease by 1.5% in 2016 and then increase by 0.8% in 2017. These forecasts are sensitive to assumptions about weather and economic growth.

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Richard MeyerDirector, Energy Analysis & Standardsrmeyer@aga.org202.824.7134@RichardMeyerDC

mailto:rmeyer@aga.org

Slide Number 1Energy in the US is�changingThis kids book light bulb is energy efficient.Slide Number 4Slide Number 5However, there are different visions for domestic energy policySlide Number 7Natural gas prices continue right down the fairway.Slide Number 9EIA Expects Natural Gas Prices to be Higher in 2017-2018 than in 2016Inflation-Adjusted Prices to Commercial Customers the Lowest since the Ford AdministrationStrong exports & power generation offsets lower heating loads in 2016.Natural gas production steady, flatWhat’s next for natural gas? Rig counts are again on the rise.Significant new takeaway capacity anticipated late 2017 into 2018.Sabine Pass Export Breakdown by Country 2016 (Bcf)How much US LNG can the global market absorb?�Maybe not much .… for now.United States – Net Energy Exporter?US Electricity Sector Fuel MixNatural Gas-Fired Generating Capacity Expected to Increase in 2017-2018Numerous solar and wind generation projects� added in 2017.Renewables replace significant volumes of natural gas for power generation in 2017.Is there other trouble on the horizon?Energy-related CO2 emissions fall below 5.2 billion metric tons in 2016 year, lowest since 1992.Slide Number 25EIA sees a 0.7% Decline in 2017 �(Stays Flat)Slide Number 27Slide Number 28