DUG East 2010

Market Effects of the Marcellus

November 3, 2010
Tom Sherman
1
 BENTEK Energy LLC
BENTEK is an energy market analytics company, focused on the natural gas
market and related energy sectors.

Based in Evergreen, CO

Founded in 1985

Over 40 Daily and Weekly Reports

covering key aspects of energy
markets

Comprehensive multi-client and

private client studies and
consultation of energy markets

95 industry analysts and IT

professionals

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 Market Effects of the Marcellus Shale
Key Points
 U.S. Production Growth

 Marcellus Growth
• Drilling Activity
• Rising Production and Effects
on Pipelines
• Premium Market Constraints
• Displacements and Realignment
of Pipeline Flows

 Summary Points
BENTEKENERGY.COM 3
 Production Back on the Rise in 2010
65.0
Cross Over Current Levels at All Time Highs
62.5

60.0

57.5
Bcf/d

55.0 Maintenance
Events
52.5 Maintenance &
Freeze-offs
50.0
Hurricanes Gustav and Ike
47.5

45.0
1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1
2008 2009 2010
BENTEKENERGY.COM Source: BENTEK Supply and Demand Report, Marketed Production 4
 Sub $4.00 Breakevens Drive Resource Plays

Powder River
Pinedale $4.32
$2.94

$3.14/
Piceance $4.54 Cana Marcellus $2.86
Woodford Woodford (Dry/Wet)
San Juan (Wet)
$5.13
$3.49
$2.67 $3.53 $3.75 Fayetteville
Granite Wash
(Wet)
Barnett $4.08 $3.50 Haynesville

Eagle Ford $3.67/

(Dry/Wet) $2.96

BENTEKENERGY.COM 5
 Marcellus - How Big Could it Be? ....… Big
World’s Largest Gas Fields Current Estimates:

Field Country Year Size DOE = 262 Tcf (2008)

Discovered (Tcf)
Terry Engelder (Penn
North Field – Qatar- State) = 489 Tcf (2009)
1976 1,400
South Pars Iran

Urengoy Russia 1966 222

Yamburg Russia 1969 138
Hassi R’ Mel Algeria 1956 123
Shtolman Russia 1989 110
Eagle Ford
Zapolyarnoye Russia 1965 95
Hugoton USA 1926 81 Haynesville: 250 Tcf

Source: IEA 2005

BENTEKENERGY.COM 6
 Marcellus Region Active Rigs

200
Marcellus Active Rigs (PA, WV)
180
160
At All Time High
140 Horizontal Rig Count of
# Active Rigs

120 131 Rigs

100
Northern Core
80
60
40
20
0
Southern Core
Horizontal Rigs
Directional Rigs
Vertical Rigs
Grand Total VER & DIR HOR
BENTEKENERGY.COM Source RigData and BENTEK:, October 2010 7
 Marcellus Shale Region Wells Drilled 2008 – 2010YTD

Northern Core

Southern Core
Horizontal Wells
Directional Wells
Vertical Wells

BENTEKENERGY.COM Source RigData and BENTEK, October 2010 8

 Tennessee 300 Line Advantage

Tennessee 300 Line

Horizontal Wells
Directional Wells
Vertical Wells

BENTEKENERGY.COM Source RigData and BENTEK, October 2010 9

 Tennessee 300 – Marcellus Growth

Tenn. 300 Line Production Receipts

1,200
Backhaul Volumes
1,000 To Dominion and
Stagecoach
MMcf/d

800

600
Displacement
Volumes Tennessee 300 Line
400
Canada, SE Gulf
200

Horizontal Wells

Volume Capacity Directional Wells

Vertical Wells

BENTEK ENERGY LLC Source RigData and BENTEK, October 2010 10

 Marcellus PA Production Growth
2,000
1,800 Oct. 2010 Approaching
1.8 Bcf/d
1,600
1,400 PA Marcellus 1.5 Bcf/d
1,200
MMcf/d

1,000 Oct. 2008 Legacy

800 Production: 300 MMcf/d
600
400
200
0

Columbia Gas Dominion Nat Fuel

Other Texas Eastern Tennessee
BENTEKENERGY.COM Source: BENTEK Pipeline Flow Data. PA Production Receipts 11
 Appalachian Production Projections
8.00

7.00 Grow 4 Bcf/d West Virginia

6.00 by 2015
Virginia
5.00
Bcf/d

Ohio
4.00
New York
3.00

2.00 Kentucky

1.00 Pennsylvania

0.00

BENTEKENERGY.COM 12
 Wave 4 Map

Last Major Constraint

Col. Gas TCO App

Winter Basis
2008/2009 = +$0.32
2009/2010 = +$0.21

BENTEKENERGY.COM Source: BENTEK

13
 Northeast Storage Fields

W4

Source: BENTEK
BENTEKENERGY.COM 14
 Wave 4 Flows
Winter Capacity at 11 Bcf/d Means
14.0 Increased LNG and Industrial
Constraints
12.0

10.0

8.0
Bcf/d

6.0

4.0

2.0 Summers Are “Demand

Constrained” at 5 - 6 Bcf/d
0.0

Flow Capacity
BENTEKENERGY.COM 15
 Summer 2010 Gas Flows
So what does Marcellus
this mean if App. production
Production growth means
grows from 3 less gas will be
Bcf/d to over 7 needed from
Bcf/d by 2015? inbound
pipelines
1.0 Bcf/d 2.9 Bcf/d during the
Appalachia
Canada 6.0 Bcf/d summer to
 East meet demand
and fill storage
13.3 Bcf/d and less gas
will be needed
2.4 Bcf/d from storage
MidC/Rox and long-haul
3.6 Bcf/d pipelines
Storage during the
7.0 Bcf/d winter to meet
Gulf 3.7 Bcf/d
Local Demand peak demand.

BENTEKENERGY.COM Source: BENTEK

16
 Northeast Future Flows

Backhauls and Displacements

375 MMcf/d
Iroquois
W4 Will Pressure
NE Premiums
Downward

App Prod

Source: BENTEK
BENTEKENERGY.COM 17
 Example of Displacements Occurring

Northeast Canadian Imports – ex-Maritimes

4.0

3.5

3.0

2.5
Bcf/d

2.0

1.5

1.0

0.5
2009 – 2010ytd Average Flows Down 29%
0.0
J F M A M J J A S O N D

2008 2009 2010

BENTEKENERGY.COM Source: BENTEK Energy Pipeline Flow data 18

 Key Takeaway Points
• Market Effects of Marcellus Shale Growth
 Pennsylvania itself has the ability to push Appalachian
production to over 7 Bcf/d in 2015, creating a supply
center.
 Eastern shale plays will force gas west and south.
 Planned expansions and backhauls will accommodate
growth.
 Supply dynamic has to change: Displacement is
already under way.
 Northeast price premiums will shrink as multiple new
pipeline expansions relieve regional transportation
constraints.
BENTEKENERGY.COM 19
 BENTEK Energy, LLC
Tom Sherman
32045 Castle Court, Suite 200
Evergreen, CO 80439
Office: 303-988-1320
Toll Free: 888-251-1264
tsherman@bentekenergy.com

BENTEKENERGY.COM 20