1 / 16

Natural Gas Market Outlook—Changing Expectations

Natural Gas Market Outlook—Changing Expectations. August 4, 2008 San Francisco, CA. North American Gas Market Outlook Short Term Dynamics For Now, Domestic Supplies Have Responded to High Price and Demand…. Regional Growth 2007-2015. North American Supply by Region.

harris
Download Presentation

Natural Gas Market Outlook—Changing Expectations

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Natural Gas Market Outlook—Changing Expectations August 4, 2008 San Francisco, CA

  2. North American Gas Market Outlook Short Term DynamicsFor Now, Domestic Supplies Have Responded to High Price and Demand… Regional Growth 2007-2015 North American Supply by Region 5.0 bcfd growth in US supply 2007-2009 • High prices have spurred record drilling levels and revived US supplies • Growth comes from unconventionals—tight gas, shale gas, and cbm • Domestic supply should rise through 2012 and hold a plateau through 2015

  3. Jonah/Pinedale/ Wamsutter Baxter Shale Uinta-Piceance Fayetteville Conasauga Barnett Woodford/Caney Woodford/Barnett Bossier/Cotton Valley Key Increments of Growth Come From the Rockies and Mid-continent Regions… Lisburne • Rockies –Greater Green River and Uinta-Piceance basins providing strong growth for the region • Gulf Coast – Tight gas production from the Travis Peak, Cotton Valley, Deep Bossier plays expected to grow • Mid-Continent & Southwest – Significant supply growth due to the development of Barnett, Fayetteville and Woodford shales • GoM – Independence Hub has provided a boost to the deepwater production. 14 deep water fields expected to come online in 2008 • WCSB – Production declines due to Increase in costs, weakening US dollar and increased royalty rates. BC shales not included in base case forecast. Powder River Basin CBM Commercial Potential/Emerging

  4. US Shale Gas Supplies: New and Emerging PlaysShale Gas Forecast • Improved technology and higher gas prices have led to strong growth from the shale plays. • Significant upside from some newly announced plays—Haynesville, Marcellus, BC Horn River Technology, Price Proximity to Market, Tax Credits

  5. New Shale Plays Have the Potential to Push Production Higher

  6. Shale Gas Supplies: New and Emerging PlaysHaynesville Shale • Operators describing Haynesville as being one of the biggest plays in the region – too early to tell • Shale present along the Texas-Louisiana border underlying the Cotton Valley sand • Current operator announced net resource potential at 17- 33.5 tcf • Acreage holders include Chesapeake, Petrohawk, Comstock, EXCO, El Paso • Chesapeake drilled four vertical tests and three horizontal wells in 2007. • Operators announcing plans to increase rigs • Horizontal wells expected to cost US$5.5 million and recover 3.5-4.0 bcfe • No issues with infrastructure expected

  7. Shale Gas Supplies: New and Emerging PlaysBC Horn River Basin Shales • Record lease sales in 2007. Favourable royalty structure. • A 2005 study on Devonian shale potential put the resource at over 500 tcf of gas-in-place. • Estimates of GIP per section double those of the Barnett, due to the thickness, rich organic content and pressure • No water production and CO2 volume approximately 10% • Apache, EOG and Nexen estimate recoverable gas resources of 18 to 31 tcf • Well costs high. Initial breakeven estimates of US$6.50-7.90/mcf • Challenges: • Winter only access, lack of infrastructure, possible delays in permitting due to native landownership, and possible environmental concerns

  8. Shale Gas Supplies: New and Emerging PlaysMarcellus Shale • Study estimates over 50 tcf recoverable reserves. Much higher than USGS estimate of 1.9 tcf. • Range Resources controls 750,000 acres. Other operators include Chesapeake, Equitable, CNX • Shale at a similar depth as Barnett (8,000 ft) and Barnett style slick water fracturing is effective • Horizontal wells expected to cost US$ 2.5-3.3 million. Recent wells have had good initial production rates of 2.6-5.8 mmcfd • Challenges • Developing the gathering infrastructure could take time. Fragmented land ownership. • Shale extends over large area and operators yet to delineate the core fairway • Very few rigs with the required depth rating and limited equipment available for fracturing

  9. What does the supply growth mean for pricing?

  10. Environmental Legislation Rising Capital Costs Shrinking Reserve Margins and Strong Demand Growth Regulatory Uncertainty Demand from the Power Sector Will Put Pressure On North American Gas Supplies Acceleration in Demand Growth, 2011-2015? Rush to Build Gas

  11. But in the Mid-Term Demand Drivers are not Strong Net Wind and Coal Power Capacity Additions • Weak US GDP growth expected to hold through start of ’09, structural issues associated w. the credit crisis and real estate weakness will forestall recovery. GDP growth of 1.8% expected for 2009 • Capacity additions from wind (derated) and coal could meet much of expected generation growth

  12. Meeting longer term US demand growth requires LNG…North America competes for flexible cargoes North America Attracts Flexible LNG in 2012… …When Prices Increase to Global Levels

  13. Competition For These Supplies is Fierce! LNG OVERVIEW:SUPPLY Global LNG Supply • Supply is struggling to keep pace with demand • Supply lag factor is evident • Slippages in projects under construction • Probable and possible projects (i.e. those that are pre-FID) are being delayed • Factors adversely impacting projects include: • Overheated resource markets • Moratoria on new LNG projects • Requirement for additional exploration • Technical challenges • Unclear Government position on exports • Permitting and approval processes FID = Final Investment Decision Source: Wood Mackenzie

  14. And Requires US Prices to Increase to Global Levels—and Reconnect With Oil Global Prices (2008$) • Oil’s influence holds in Japan and the UK, although Japanese uncontracted prices fall as Pacific Basin LNG supplies climb • US prices disconnect from global gas prices, and move toward coal by 2009, prices for both gas and coal move lower for 2010 • Recovery and reconnection begins as the pressure from the power sector increases and domestic supply growth stalls in 2011 and 2012 Reconnecting to Global Markets, and Oil?

  15. Carbon Legislation Could Push Gas Demand Higher • Framework based on Lieberman-Warner • Lack of alternative fuels and technology drive gas demand • Tight emission credit markets drive capacity economics to favor gas • Utilities are indifferent to gas price • Industrial demand may be at risk dependent on global gas-intensive commodity markets

  16. Wood Mackenzie Kintore House 74-77 Queen Street Edinburgh EH2 4NS Global Contact Details Europe +44 (0)131 243 4400 Americas +1 713 470 1600 Asia Pacific +65 6518 0800 Email energy@woodmac.com Global Offices Australia - Canada - China - Japan - Malaysia - Russia - Singapore - South Africa - United Arab Emirates - United Kingdom - United States Wood Mackenzie has been providing its unique range of research products and consulting services to the Energy industry for over 30 years. Wood Mackenzie provides forward-looking commercial insight that enables clients to make better business decisions. For more information visit: www.woodmac.com

More Related