North American Gas Market

Outlook for the
North American and Ontario

Natural Gas Markets
Union Gas Customer Meeting
London, Ontario
June 2016
Presented by:
Mike Sloan
ICF International
Michael.Sloan@ICFI.COM
703.218.2758
Contents
North American Natural Gas Market Overview
Recent Market Trends
ICF Market Projections
Outlook for the Ontario Natural Gas Market
North America Natural Gas Market Outlook

Price Trends
Gas prices are expected to remain lower for the remainder of 2016, but have the potential
to rise sharply in 2017.
Low oil prices, high storage inventories, relatively weak demand, and a large inventory of drilledbut-uncompleted wells in the Marcellus/Utica shales are likely to keep prices low for the remainder
of the year.
As inventories of drilled-but-uncompleted wells are drawn down, gas supplies will tighten, prices
will rise, and price volatility will increase.
In the long-term, steady demand growth will cause prices to rise.

Current price levels are not sustainable, but continued drilling productivity increases will limit gas
price increases.
Gas is expected to continue to gain market share in the power sector.
Long-term power sector gas demand is driven by coal and nuclear plant retirements and electricity
demand growth.
Exports to Mexico continue to grow at a robust pace, and U.S. LNG exports rise as oil prices recover.
Seasonal price spreads are expected rebound from recent floors when prices start increasing and
when additional LNG exports start in 2018 and 2019.
2016 ICF International. All rights reserved.
North America Natural Gas Market Outlook

Production and Infrastructure
Gas production from oil wells continues to moderate in response to relatively low oil prices, as
producers realign their portfolios, focusing on more productive plays.
The Marcellus and Utica shale will continue to be the primary source of new gas production; however,
drilling is likely to continue to shift to drier parts of the plays if oil prices remain relatively low for a longer
duration.
Canadian production growth will come entirely from shale and unconventional resource development.
Natural gas flow patterns change significantly as Marcellus/Utica production continues to

increase.
Midstream infrastructure development facing headwinds, but is still needed to accommodate
growing gas production.
Development will be mostly focused on linking Marcellus/Utica supplies to regions with market growth.
Extended low oil prices could compromise infrastructure development.
Price volatility is likely to increase as demand strengthens. Regional volatility is expected to

remain high in the Northeast consuming markets during winter when gas use peaks.
Assumed Oil Prices for ICFs Gas Market

Projections
ICF Projected
60
40
Jul-18
Oct-18
Apr-18
Jan-18
Oct-17
Jul-17
Jan-17
Apr-17
Oct-16
Jul-16
Apr-16
Jan-16
Jul-15
Oct-15
Apr-15
Jan-15
Oct-14
Jul-14
20
Jan-14
Lower oil price reduces gas

development from oildirected plays like Permian
and Bakken, but have
minimal impact on gasdirected plays like Marcellus.
80
Apr-14
ICF projects a slow recovery to

$75/bbl, based on the
equilibrium marginal
production cost of $75/bbl.
NYMEX Futures
Oct-13
Geopolitical factors
Historical
100
Jul-13
Weak global demand
120
Apr-13
High inventories
Crude Oil Spot Prices (US$/bbl)
Jan-13
Between June 2014 and

February 2016, oil prices
dropped by over 70%.
2015 Short-term Market Trend Rig Count

US gas rig count in May 2016
was down 74% compared to
average 2014 levels.
Total operating gas rigs in the
U.S. has decreased from 372 in
January 2014 to 85 as of May
20, 2016.
Rig activity down everywhere,
but the most dramatic declines
have been the in Midcontinent
plays (e.g., Woodford, Barnett).
Improvements in rig
efficiency partially offset the
decline in rig activity.
Reduced drilling activities will
result in slower production
growth over the next 6 to 12
months.
U.S. Gas Rig Count
Williston
Permian
400
Others
350
Mississippian
Haynesville
300
Granite Wash
250
Fayetteville
Eagle Ford
200
DJ-Niobrara
150
Cana Woodford
Barnett
100
Arkoma Woodford
50
Ardmore Woodford
Utica
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16
Marcellus
Source: Baker Hughes Rotary Rig Count by Basin
ICFs Near-term Gas Price Projection
Through the end of 2018, ICFs Q2

price projection average is slightly
lower than the current future
strip.
Slow projected growth in
demand.
Storage inventory overhang
$6.00
Near-term Henry Hub Price, Nominal

$/MMBtu
$5.00
Nominal $/MMBtu
Projected gas prices rise from

$1.90 to almost $3 per MMBtu by
the end of 2016, averaging about
10 cents below recent futures
prices.
$4.00
$3.00
$2.00
$1.00
Historical
ICF Q2 2016 Projection
April 25 Nymex Futures

7
ICFs Long-term Price Projection
However, low production costs

will keep a lid on price increases.
Prices likely to stay below $4 per
MMBtu through 2020.
Long-term prices are expected

to range between $4 and $5
per MMBtu.
Gas prices of $4 to $5 per
MMBtu are sufficient to foster
supply development, but not so
high as to throttle the demand
growth.
Annual Average Henry Hub Price
$10
$9
$8
$7
2015$/MMBtu
After 2017, prices are likely to

rise and be more volatile as
producers continue to reduce
capex and demand ramps up.
Long-term demand growth will

be shaped by future
environmental policies and their
impact on power sector gas
demand.
$6
Demand
Surge and
LNG
Exports
Ramp Up
Cold Winter
Pops 2014
Gas Price
$5
Producer Cutbacks Tighten

Supply
$4
Stable Prices
Market
Growth and
Supply
Growth
Synchronized
Nuclear
Retirements
$3
$2
$1
Mild Winters
Yield Lower
Prices
$0
2010
2015
2020
Historical
2025
2030
ICF Projected
2035
8
Projected Gas Demand

Demand growth for natural gas
is driven primarily by growth in
export markets (LNG and
Mexican exports) over the next
five years.
140
U.S. and Canada Gas Use,

Average Bcfd
Mexican
Exports
120
Gas will continue to gain market

share from coal in the power
100
sector.
In the near term, shift from
coal to gas is due to low gas
prices.
In the long term, ICF assumes
the U.S. will adopt some form
of carbon policy, forcing more
coal units to retire.
80
Power
60
Industrial
40
Commercial
20
0
2010
LNG Exports
Residential
Other
2015
2020
2025
2030
2035
9
Projected Exports
ICFs current projection assumes U.S. LNG
exports peak at about 10 Bcfd by 2025, and
decline to about 8 Bcfd by 2035.
Total U.S. LNG exports are estimated based
on both Firm and Spot LNG exports using the
methodology outlined below.
ICF has reviewed the current contracted
capacity for each of the US LNG facilities
and estimated firm take away export
volumes based on contracts.
Spot LNG export volumes are estimated
based on gas-to-oil price ratio, world
LNG demand growth and US market
share of contestable LNG demand.
LNG exports from British Columbia are
delayed until 2026 and reach 1.4 Bcfd by
2028.
U.S. exports to Mexico will continue to

grow, driven by increases in U.S.
production and growth in Mexican gas
use.
Mexican gas demand is driven by
replacement of oil-fired generation.
14
LNG Exports (Average Bcfd)
12
10
US East Coast
British
Columbia
8
6
US Gulf Coast
4
2
0
2010
8
2015
2020
2025
2030
2035
US Exports to Mexico (Average Bcfd)
6
4
2
0
2010
2015
2020
2025
2030
2035
California
West Texas/New Mexico
Arizona
South Texas
10
Projected Gas Supply

Total gas production increases
by nearly 2% per year.
By 2023, shale gas
production accounts for over
70% of all U.S. and Canada
gas production.
Other unconventional gas
production remains fairly
constant:
Tight gas increases modestly
while CBM declines.
U.S. and Canadian Gas Production (Tcf per year)

50
45
40
35
30
Shale
25
Conventional production
continues to decline by over
2.5% annually.
20
Offshore production exhibits

modest increases.
10
15
Offshore
Tight
Coalbed Methane
5
0
2010
Conventional
Onshore
2015
2020
2025
2030
2035
11
Changes in Pipeline Flows Over the Next Decade

Robust Marcellus &
Utica gas production
growth displaces
flows from the Gulf
Coast such that many
Gulf Coast to
Northeast pipelines
reverse flow by 2017.
Marcellus gas will
reach Eastern
Canada through
Michigan and New
York.
Declining
conventional
production in Alberta
and increasing gas
consumption for oil
sands development
and LNG exports from
British Columbia
reduce eastward
flows from Western
Canada.
Source: ICF International
12
Outlook for the Ontario Market
Compared to the winter of 2014/15, average

spot prices were 40% to 70% lower this winter
US$ per MMBtu
Range of Daily Spot Prices
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
Winters of 2013/14, 2014/15, and 2015/16

Max = $31
2013/14
2014/15
2015/16
2013/14
Henry Hub
2014/15
2015/16
Dawn
Price Range
Max = $69
Max = $20
2013/14
2014/15
2015/16
Iroquois-Waddington
Average
14
What was different this past winter?

Weather
The winter of 2015/16 was the warmest on record for the both the U.S. and
Canada
Storage
At the end of the 2015 injection season, storage inventories at record highs in both
the U.S. and Canada.
Supply
Continued growth in production, mostly from the Marcellus and Utica, contributed
to a looser supply/demand balance
15
A lot of additional pipeline capacity in the

planning stages, but how much will be build?
Project(s)
From
To
Capacity
(MMcfd)
Year
1,050
2017
347
380
430
480
405
380
672
2016
2017
2016
2017
2017
2017
2020
112
2016
Planned 2016,
but delayed indefinitely
2016
2016
2017
(delayed, was 2016)
2017
2018
2018
2018
Dominion New Market Expansion
To Ontario from Outside the Province

Marcellus/Utica
Vector Pipeline
Within Ontario
Parkway
Maple
Niagara/Chippewa
Parkway
Dawn
Parkway
Dawn
Parkway
Parkway
Maple
Niagara/Chippewa
Parkway
Parkway
Iroquois/Waddington
To Northeast/New England
Marcellus Interconnects
Upstate New York
Constitution
Northeast Pennsylvania
Wright, New York
650
AIM (Algonquin)
TGP Connecticut
New York
New York
New England
New England
342
72
National Fuel Northern Access
Pennsylvania
Western New York
497
Atlantic Bridge
Access Northeast
Penneast Pipeline
Millennium Upgrade
Marcellus
Marcellus
New England & Maritimes

New England
New Jersey
New York
Rover/Nexus *
TCPL Kings North
TCPL Niagara Expansion
Union Dawn to Parkway 2016
Union Dawn to Parkway 2017
TCPL Vaughn Loop
TCPL Niagara Expansion
Eastern Mainline Expansion
300
1,000
1,000
200
* Where there are multiple projects competing to add capacity on the same path, the capacity shown is the total amount expected by 2018.
16
New capacity in the U.S. and Ontario will allow

greater access to Marcellus/Utica gas
Over the past 3 years, capacity
expansions by Tennessee,
Dominion, National Fuel, and
Empire have made it easier to
move Marcellus gas to Niagara
and Parkway.
If completed, new pipelines
proposed by Spectra (NEXUS) and
ET (Rover) would allow additional
Marcellus and Utica production
to move to Dawn.
Parkway
Capacity expansions within

Ontario will also allow greater
access to Marcellus/Utica
supplies.
17
Potential Impacts of Energy East Project

If approved, TCPLs Energy East project would remove about 1.2 Bcfd of capacity
from service on the Mainline from Alberta to eastern Ontario.
TCPL also proposes to add some new capacity in eastern Ontario, but in net capacity into
Ontario would be about 600 MMcfd below what is currently contracted;
During two of the last three winters, all of the current capacity was used on peak winter days.
18
Outlook for the Ontario Market

Near-term (next 2 to 4 years)
The Mainline settlement assures TransCanada's commitment to add pipeline capacity in the
Eastern Triangle, providing shippers with better access to Dawn and Niagara supplies.
Renewal provisions give TransCanada more certainty over capacity requirements, but also
continued pricing discretion.
So, TransCanada will build additional capacity in the Eastern Ontario Triangle to meet
demand, but at what cost?
Long-term (2020 and beyond)

TCPLs Energy East project, now planned for 2020, will reduce available capacity in the
Eastern Ontario Triangle.
Continued growth in Marcellus/Utica production and new pipeline in the Northeast will
provide free up some supplies, but not completely replace the capacity lost due to Energy
East.
For shippers holding firm capacity, the effects will be relatively modest, although the
impacts are likely to include higher long term pipeline capacity costs.
Shippers who do not hold firm capacity will be exposed to higher prices and greater price
volatility.
19
Most of Ontarios Demand Growth Comes from

the Power Sector
4.5
4.5
4.0
4.0
3.5
GJ per Day
Consistent with
recent NEB
forecasts.
5.0
Ontario Gas Demand
Power
Generation
2.0
1.5
Industrial
Commercial
3.0
2.0
1.5
1.0
1.0
0.5
3.5
2.5
2.5
Residential
0.5
0.0
0.0
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Demand growth is
led by the power
sector, and is
primarily due to
nuclear retirements
and refurbishments.
3.0
Other
Bcfd
ICF projects total

Ontario gas use will
increase by
approximately 0.9
GJ/d (0.8 Bcfd) by
2025.
Uncertainties Around Future Gas Demand for

Electricity Generation
OME Energy Production Forecast, 2032*
The Ontario Ministry of Energy Long-term

Energy Plan (LTEP) projects the province will
meet future electricity needs primarily
through a combination of conservation
(reducing the growth of consumption) and
increased renewable generation.
Nuclear Retirement/Refurbishment Schedule
New capacity is natural gas.

All Pickering units are scheduled
to retire by 2024.
Maintaining nuclears ~40% share
of total generation requires the
refurbished of 10 units between
2017 and 2033.
*Source: Achieving Balance - Ontarios Long-Term Energy Plan, Ontario Ministry

of Energy, December 2013.
21
Regional Flow Changes: Flows From Western Canada

Continue to Decline, but Opportunities for New
Supplies Are Increasing
Annual Average Pipeline Flows, MMcfd
2015
Projected 2025
22
Regional Flow Changes:

(continued)
January Average Pipeline Flows, MMcfd
2015
Projected 2025
(Assumes Energy East)
23
The Future for Dawn Storage

Growth in Marcellus production has held down the intrinsic value of storage at Dawn.
Rapid growth of Marcellus supplies increases winter gas deliverability, thereby holding down
winter prices and reducing seasonal price spreads at Dawn.
Falling prices tied to the production growth also have held down seasonal price spreads.
Going forward growth in Ontario power generation gas demand will likely increase the
extrinsic value of storage.
Gas generators ramp up and down quickly, requiring rapid response from the gas system.
As a result, storage deliverability will be in demand to meet this need.
And, reversal of natural gas price trends (from falling prices to rising prices) will lead to
additional seasonal value of storage.
The availability of storage in Ontario, and limited growth in storage in the Appalachian
basin will ensure that Ontario and Northeastern U.S. markets will remain closely linked.
The need for access to storage for Appalachian basin production will lead to increased storage
utilization, and to increased pipeline utilization between Ontario and the Appalachian Basin.
24
Thank You!
Questions?

North American Gas Market

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

North American Gas Market

Caricato da

Copyright:

Formati disponibili

Outlook for the

North American and Ontario

Outlook for the Ontario Natural Gas Market

North America Natural Gas Market Outlook

In the long-term, steady demand growth will cause prices to rise.

North America Natural Gas Market Outlook

Natural gas flow patterns change significantly as Marcellus/Utica production continues to

Price volatility is likely to increase as demand strengthens. Regional volatility is expected to

2016 ICF International. All rights reserved.

Assumed Oil Prices for ICFs Gas Market

2016 ICF International. All rights reserved.

Lower oil price reduces gas

ICF projects a slow recovery to

Weak global demand

Crude Oil Spot Prices (US$/bbl)

Between June 2014 and

2015 Short-term Market Trend Rig Count

U.S. Gas Rig Count

Source: Baker Hughes Rotary Rig Count by Basin

2016 ICF International. All rights reserved.

ICFs Near-term Gas Price Projection

Through the end of 2018, ICFs Q2

Near-term Henry Hub Price, Nominal

Projected gas prices rise from

ICF Q2 2016 Projection

April 25 Nymex Futures

ICFs Long-term Price Projection

However, low production costs

Long-term prices are expected

Annual Average Henry Hub Price

After 2017, prices are likely to

Long-term demand growth will

Producer Cutbacks Tighten

Projected Gas Demand

U.S. and Canada Gas Use,

Gas will continue to gain market

2016 ICF International. All rights reserved.

U.S. exports to Mexico will continue to

LNG Exports (Average Bcfd)

US Exports to Mexico (Average Bcfd)

Projected Gas Supply

U.S. and Canadian Gas Production (Tcf per year)

Offshore production exhibits

2016 ICF International. All rights reserved.

Changes in Pipeline Flows Over the Next Decade

Source: ICF International

2016 ICF International. All rights reserved.

Outlook for the Ontario Market

Compared to the winter of 2014/15, average

US$ per MMBtu

Range of Daily Spot Prices

Winters of 2013/14, 2014/15, and 2015/16

2016 ICF International. All rights reserved.

What was different this past winter?

2016 ICF International. All rights reserved.

A lot of additional pipeline capacity in the

Dominion New Market Expansion

To Ontario from Outside the Province

Wright, New York

National Fuel Northern Access

Western New York

New England & Maritimes

2016 ICF International. All rights reserved.

New capacity in the U.S. and Ontario will allow