Document Emmgr5ggM2E0xEK8zv7a9XMNV

17cv01906 Sierra Club v. EPA Future Natural Gas Supplies, Demand and Pricing for the United States, Mexico, and Canada EPRI's 36th Annual Seminar on Fuels, Power Markets, and Resource Planning EPRI Office, Washington, DC KMeari'ai Pinetadkirector Natura uas ana Liquids Markets IlM 703-218-2753 p ED_001523_00006095-00001 Disclaimer Waivers: Those viewing this Material hereby waive any claim at any time, whether now or in the future, against ICF, its officers, directors, employees or agents arising out of or in connection with this Material. In no event whatsoever shall ICF, its officers, directors, employees, or agents be liable to those viewing this Material. Warranties and Representations: ICF endeavors to provide information and projections consistent with standard practices in a professional manner. ICF MAKES NO WARRANTIES, HOWEVER, EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), AS TO THIS MATERIAL. Specifically but without limitation, ICF makes no warranty or guarantee regarding the accuracy of any forecasts, estimates, or analyses, or that such work products will be accepted by any legal or regulatory body. ^ICF 17cv01906 Sierra Club v. EPA : ED_001523_00006095-00002 ICF is a Fast-Growing Diverse Consultancy with Domain Expertise in Energy Markets w 5,000+ employees Largest Energy Efficiency Consultancy/ Implementation Firm in North America energy environment -'ICF 17cv01906 Sierra Club v. EPA "One of America's Best Small Companies. " -- Forbes 2005-2011 transportation health care World-class expertise 4 ED_001523_00006095-00003 Outlook for North American Markets Market Overview, Highlighting Key Factors Driving Natural Gas Supply, Demand, and Pricing Uncertainties for Market Development Implications and Conclusions 17cv01906 Sierra Club v. EPA ED_001523_00006095-00004 Setting the Stage with Key Observations about Recent Market Trends North American natural gas has generally been in a "supply push" and not a "demand pull" environment during the past five years. Gas supply has been growing robustly as productivity continues to rise, despite lower drilling levels over the past 24 months. Warmer-than normal winters have also influenced (reduced) gas prices. Drivers are in place to shift the gas market into a "demand pull" environment. Future gas prices will be determined by the "tug of war" between demand growth and technology evolution for gas supply. 17cv01906 Sierra Club v. EPA ED_001523_00006095-00005 Key Trends Projected in ICF's Base Case Natural gas prices will be modestly higher during the next decade, approaching $4 per MMBtu at Henry Hub by 2025. But, gas price increases will be limited by relatively high price elasticity of U.S. supplies - Marcellus/Utica, Haynesville, and West Texas supplies are abundant. Even though prices will be up, gas will remain attractively priced for many consumers. LNG and Mexico exports are likely to rise significantly - LNG exports approach 10 Bcfd and Mexico exports rise to 6 Billion cubic feet per day (Bcfd) by 2025. U.S. and Canada's gas use for power is also up significantly; +9 Bcfd (35%) by 2025. Significant upside for gas exports if gas-fired power generation doesn't grow by as much as projected. 17cv01906 Sierra Club v. EPA 6 ED_001523_00006095-00006 Important Assumptions in ICF's Base Case Economic activity remains strong with 2.1 % growth in GDP annually. Oil prices rise, reaching $75 per barrel by 2025. Global gas trade rebounds with healthy economic activity. Mexico's gas use rises as older oil-fired power plants are replaced by newer gas units. Technological improvements continue for gas supply development, increasing recovery factors. Electric load growth averages roughly 0.7% per year across the U.S. and Canada, consistent with recent ISO projections. National carbon reduction programs are implemented, with some states adopting more aggressive measures. Renewables growth occurs, meeting state standards. 17cv01906 Sierra Club v. EPA ED_001523_00006095-00007 ICF's Projection for U.S. Gas Supply - Robust Growth Likely to Continue but Concentrated in a Few Areas Total gas production approaches 98 Bcfd by 2025. U.S. Marcellus/Utica's production up to 42 Bcfd - continuing to be the largest gas play in North America. West Texas approaches 13 Bcfd - diverse production area with upside potential. A resurging Haynesville rises to over 8 Bcfd. Rest of U.S. down by 3 Bcfd. 17cv01906 Sierra Club v. EPA 8 ED_001523_00006095-00008 ICF's Projection for U.S. Gas Use - Growth Will Come from "New Markets" Gas use rises for LNG exports, exports to Mexico, and power generation. 100 ............. U.S. Gas Demand (BcfdJ 120 Growth will be concentrated ..........................................................i.n......t.h....e.....E....a. stern U.S., particularly along the Gulf Coast. 80 60 40 20 0 illiil^^ ##.%"" ### 12 22 12 ## rtC5#aV#nTk# - -Ap# b .A^s"# n% LNG Exports off of the Gulf Coast lead the way - up to over 9 Bcfd by 2025. "Second Wave" of LNG expansions possible around 2025. Mexico exports have significant upside, mostly from West Texas. Gas-fired power generation is a significant driver of Eastern U.S. growth. 9 17cv01906 Sierra Club v. EPA ED_001523_00006095-00009 LNG and Mexico Exports are a Big Portion of the "New Market" Growth LNG Exports (Avetago Bcfd) 12 :.............................................................................................. 10 i........................................................................................ US Eas1 S j......................................................................... 6 i........................................................... 4 i................................................... 2 i.......................................... 0 ..... ;..... ;............ 4^ rO 2O4 r&42 K> rO4? 4^ 4AV (<4>2 ft422 2AVf *44 4.V2 r4d2 <4xV^ 441t US Pipeline Exports to Mexico (Average Bcfd) 7 :.................... 45^ California Arizona WestTexas/New Mexico SouthTexas Significant UPSIDE for LNG and Mexico Exports 17cv01906 Sierra Club v. EPA 10 ED_001523_00006095-00010 US Generation and Capacity Mix - Coal and Nuclear Down; Gas and Renewables Up 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 1,200 2017 2018 2020 Nuclear Natural Gas Non-Hydro Renewables Coal Hydro 2025 2017 Nuclear Combined Cycle -s Hydro 2018 2020 Coal 2025 Combustion Turbine Non-Hydro Renewables 17cv01906 Sierra Club v. EPA 11 11/10/2017 ED_001523_00006095-00011 Regional Gas Use for Power Generation (Bcfd) 20 -J 15 H 10 - 20 is 2-5 15 1C 2010 2015 2020 021 Atta 20 20 T JliiMiglgi 15 lis -I .jQIBIM 10 2010 2015 2025 0.9 0 2025 2010 2015 2020 1 Go 7.7 2010 2015 2020 2025 0 2010 2015 2020 2025 ICF 17cv01906 Sierra Club v. EPA 12 ED_001523_00006095-00012 Overview of Gas Infrastructure (Pipeline) Development For API's study entitled U.S. Oil and Gas Infrastructure Investment through 2035: An Engine for Economic Growth, ICF projected that almost 50 Bcfd of new gas pipeline capacity would be added from 2017 through 2025, at a cost ranging from $100 to $150 billion. Pipeline development will be widespread to facilitate transport of gas from areas where supply is growing to budding markets. Hot spots for new capacity include: Marcellus/Utica West Texas Haynesville Continued buildout of pipelines out of the Marcellus/Utica is very important because it limits gas price increases across the continent. 17cv01906 Sierra Club v. EPA 13 ED_001523_00006095-00013 Pipeline Transport Shifting Significantly, with Northeast to Southwest Trend Canadian Production Growth Modest - Montney and Duvernay Up, Conventional Down Flows in 2025 (Bcfd) Marcellus/Utica, West Texas, and Haynesville Gas Production Continue to Supply Most Gas Needs Marcellus o West Texas Mexico Exports South Texas Mexico Exports p Gulf LNG Exports 17cv01906 Sierra Club v. EPA ED_001523_00006095-00014 Pipeline Development Projected to be Robust During the Next Few Years Area Northeast U.S Canada Gulf Coast West Texas To Mexico Rockies West Total Capacity (Bcfd) Some Major Projects 10.7 Leach Xpress, Rover Pipeline Phase 1, PenneastPipeline, Atlantic Sunrise, Dominion Supplu Header, Atlantic Bridge, Rover 2.8 Dawn to Parkway 2017-Bright Compression, TCPL Vaughan PipelineLoop, Towerbirch Expansion Spruce Ridge Project 1.8 Impulsora Crossing, Nueces-Brownsville, Gulf Connector, Stratton Ridge, Lone Star, Hillabee Pipeline 5.8 Gulf Coast Express, Pecos Trail Pipeline, Permian to Katy Pipeline 3.7 Impulsora Crossing Project, Nueces-Brownsville 0.0 N/A Roughly 25 Bcfd of new pipeline capacity will be placed into service with the completion of major projects during the next few years. This tally does not include smaller localized projects. New capacity is needed to facilitate market growth. 17cv01906 Sierra Club v. EPA 15 ED_001523_00006095-00015 Gas Prices Projected to Trade Between $3 and $4 at Henry Hub Near-term Henry Hub Price, Nominal $/MMBtu $6 $5 $4 $3 $2 $1 $0 x^ x^ --Historical --ICF Q4 2017 Projection Futures as of Oct 31 2017 pA aQ aV aV a> a^ x^ x^ Source for Historical and Futures Prices: ABB, Ventyx Difference between the futures strip and ICF's fundamentals view is likely due to level of market growth. Nevertheless, gas will continue to be priced attractively for most consumers. 17cv01906 Sierra Club v. EPA ED_001523_00006095-00016 Many Supply Areas Will Trade Below Henry Hub Few Markets Trade Higher Marcellus and Utica (Dominion South Point) Algonquin Citygates (New England) Haynesville Supply (Carthage Hub) Chicago Citygates MidContinent Supply (OK) Houston Ship Channel Opal AECO SoCal West Texas South Texas $0.49 ($0.03) ($0.01) ($0.92) $0.13 ($0.20) $0.00 $0.87 ($0.03) ($0.04) ($0.65) ($0.33) $1.07 ($0.01) ($0.03) ($0.54) ($0.21) 17cv01906 Sierra Club v. EPA 17 ED_001523_00006095-00017 Summarizing Gas Prices Projected prices are likely to rise above levels observed during the past few years due to robust market growth. However, relatively high price elasticity for gas supply will limit price increases. Continued improvement of well productivity is an important factor to watch. Henry Hub will trade at a premium, and gas prices at many other locations will be much lower. Henry Hub can no longer be thought of as "the representative price for North American natural gas". 17cv01906 Sierra Club v. EPA 18 ED_001523_00006095-00018 Major Uncertainties for Market Development and Gas Prices Amount and Timing of Supply Development Pipeline Infrastructure Development Global Market Conditions - LNG Overhang and Oil Prices Regulatory Changes and Policies (e.g., resiliency NOPR) Weather 17cv01906 Sierra Club v. EPA 19 ED_001523_00006095-00019 Example Sensitivity Analysis (Potential Impact of Weather on Next Year's Gas Prices) Price Distribution st Henry Hub from Nov-17 to Oct-18 Gas prices can range from $2.60 to $4.80 over the next year, solely due to weather. 1814 I si 1. 296. 241 1 I2S 4 5" I 1S Jp -jP Nomlnil $/MMBtu Mfi Max Mian Midan BmCIM $27(2U1) $42(1976) MM $348(1957) $3,13 Std.OO. Varina StewnMi bMa asas a 20 17cv01906 Sierra Club v. EPA ED_001523_00006095-00020 Implications and Conclusions Market growth likely to be significant. Market transitioning from "supply push" to "demand pull" environment. Gas prices up gradually during the next decade - after all, gas is a commodity and "price cycling" is typical. Price increases limited by relatively high price elasticity for gas supply, with productivity increases affecting price levels. Continued development of pipeline infrastructure is imperative for supply development and market growth. Still much uncertainty for gas markets, with regulatory changes difficult to predict. 21 17cv01906 Sierra Club v. EPA ED_001523_00006095-00021 Questions & Contact Information Kevin Petak Managing Director, Natural Gas and Liquids Markets kevin.petak@icf.com +1.703.218.2753 17cv01906 Sierra Club v. EPA 22 ED_001523_00006095-00022