David Givens presentation to Devon Energy October 2015
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Transcript of David Givens presentation to Devon Energy October 2015
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Market ReportingConsulting
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Market review for Devon EnergyOklahoma City, Oklahoma
David Givens26 October 2015
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Coal’s slide is inevitable as air rules mount
• Buyers have an array of supply options
• Midwest markets already affected
• Exports to Mexico jump far ahead of LNG
• Argus working to provide constructive solutions
Many new forces drive gas market in 2015-16
illuminating the markets
• World’s largest independently held energy markets PRA – 750 staff, 23 countries
• Publish > 8,000 daily commodity price assessments + energy market intelligence
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• Indexation examples◦ US crude oil◦ US and European refined products ◦ US and European natural gas◦ Global NGLs
Argus Media: global, market-focused, independent
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Market ReportingConsulting
Events
Coal, gas are switching places in generation
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Q1 2016 gas ◦ Not competitive for generation in Gulf Coast, midwest◦ On the bubble in West, midcontinent
• Additional coal to gas switching may be limited now◦ Coal prices falling◦ Locational dispatch directives
• EIA:◦ Coal's share of generation unchanged at 35pc in 2016◦ Gas’ share could fall 1 percentage point to 31pc◦ Most coal plants scheduled to retire in 2016 cut deliveries
Gas may not advance in generation next year
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Coal-fired generation in PJM fell by 7.4pc in August
• MISO August coal burn decreased by 14pc
• Natural gas generated 9pc more electricity in September in Texas
• Southwest coal-fired generation down 13pc in September
Yearly gas gains in generation are impressive
Market ReportingConsulting
Events
Gas expected to benefit from multiple air rules
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Expected Federal Register publication 23 October
• Some states used Freedom of Information Act to get documents on the plan’s publication process
• EIA: plan could result in retirement of another
90GW of coal-fired generation from 2014 to 2040, double EPA estimate
Clean power plan release was imminent
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• EPA sent new ozone standard to White House◦ 65-70 ppb, down from 75ppb◦ Possible December release
• SO2, NOX budgets for 13 states under cross-state rule invalidatedo Rule sent back to EPA but still in effect
• Clean Power Plan for existing units ◦ Could lower SO2, NOX and particulates by 25pc by 2030
Coal seems pancaked with regulations
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Mercury and Air Toxics Rule back at the D.C. Circuit
• EPA expects to respond in spring
• Court must decide vacate or remand ◦ Vacate: 165 power plants that received one-year
compliance extensions avoid installing pollution controls
◦ Remand: keep the regulations intact
States succeed in stalling mercury rule
Market ReportingConsulting
Events
Utilities are in the driver’s seat
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Local distribution companies buying gas reserves◦ Black Hills in plains, Rockies◦ NextEra’s FP&L gets Woodford supply from PetroQuest◦ Wexpro supplies Questar in Utah, Wyoming◦ Louisiana: Entergy, AEP, Cleco may examine all options ◦ AGL negotiating with regulators in Virginia
• Capitalization versus long-term hedging• Financed through the rate base; regulator-
approved• LDCs on Atlantic coast choose infrastructure
Overcoming reluctance for long-term reliance on gas
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Renewables targeted at 50pc in 2030 for power
• Forecast for decline in gas use for power
• End-use growth only up 1pc annually
• Unusual policy focus: Expecting big gains from CHP, biogas for transport
California is the outlier
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Drought in California suggested another power panic
• Stout summer basis at citygates again
• Utilities outside of California cannot ignore low gas prices
• Gas use not growing in state, but may not fall
• Several occasions California gas demand at 6 Bcf/d in summer as renewables generate 17pc of power
Western grid dodges the bullet
Market ReportingConsulting
Events
LNG exports remain on the horizon
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
Five US facilities under construction• Peak capacity of 71mn t/yr (9.8 Bcf/d)• Contracted capacity 57.2mn t/yr• Qatari output is 77mn t/yr
Copyright © 2015 Argus Media Ltd. All rights reserved.
Cove Point
Sabine Pass
CameronFreeportCorpus Christi
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Sabine Pass • 20mn-25mn t/yr• Commissioning cargo Q4 2015• Trains 1-4 Mar 2016-Aug 2017
• Cove Point • 4.6mn-5.75mn t/yr• One train late 2017
• Cameron • 12mn-14.95mn t/yr
• Freeport • 13.2mn-15.4mn t/yr
• Corpus Christi • 7.7mn-10mn t/yr
Most US capacity expected on line after 2018
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Cumulative peak capacity (mn t/yr)Cumulative baseload capacity (mn t/yr)
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• 46.5 Bcf/d, or 363mn t/yr, to FTA nations
• 42 Bcf/d, or 328mn t/yr, to non-FTA nations
• Both more than current global LNG market
US project totals would dominate LNG trade
FTA Non-FTA 2015 market0
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Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Proposals total 344mn t/yr, about as much as the US
• Most in western Canadao Use Canadian shale gaso Target Asiao Likely oil-linked
contractso More expensive than US
but cheaper shipping
Canadian proposals also extensive• Four projects in eastern
Canada totaling 38mn t/yro Target Europeo Could use cheap US
Marcellus gaso Will need US non-FTA
licenseo Could also use western
and eastern Canadian gas
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Chevron sees 70mn t/yr of unsanctioned capacity needed by 2025
• Global demand expected to reach 440mn t/yr by 2025
• Expects 70mn t/yr of US capacity to be built and 80mn t/yr outside of US
• US could account for most of 70mn t/y of unsanctioned capacity
US likely to meet most of future demand
70
80
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Needed production by 2025 (mn t/yr)
USNon-USUp for grabs
Copyright © 2014 Argus Media Ltd. All rights reserved.
illuminating the markets
• Projects at existing terminals
• Portfolio companies with deep pockets
• Projects with off-take contracts
• Projects progressing at FERC and MARAD
• Consensus estimate: 8 Bcf/d of exports by 2020
LNG export terminals with best chances
Market ReportingConsulting
Events
Exports to Mexico grow, market access may not
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• DOE approves many export permits
• Very few of the same companies have open access permits authorized by CRE
• Sales are to:◦ Private pipelines◦ PEMEX◦ Industrials◦ CFE
• Small market exists for trucked LNG
US has six major points of export to Mexico
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Maximum quantities authorized by CRE each month in mn cfd
• Some cross-regional flows
• Intent is to incentivize efficiencies, minimize costs
• Based on modeling; new projects will get factored in
• Reynosa, Ciudad Pemex are VPM pricing locations
Energy regulator CRE authorizes system capacities
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• CRE daily hydrocarbons report at http://www.cre.gob.mx/articulo.aspx?id=394
• VPM means Venta de Primera Mano, or “first hand sales” by PEMEX and subsidiaries
• US prices change with demand:◦ TGP south Texas in second week October at 9¢/mmBtu
discount to Henry Hub, widening 2¢/mmBtu from prior week
◦ Exports to Mexico dropped by 5.8pc from previous week
Some transparency already exists
Copyright © 2015 Argus Media Ltd. All rights reserved.
Key takeaway: VPM is discounted to Henry Hub
2 Jun 15 26 Jun 15 20 Jul 15 13 Aug 15 6 Sep 15 30 Sep 152.4
2.5
2.6
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3.0Mexico first hand sales vs Henry Hub cash
Henry Hub cash Reynosa Ciudad Pemex
$/m
mBt
u
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Former PEMEX gas pipeline assets being transferred to CENAGAS
• Focus now is on the legalities of the transfer
• CENAGAS will be responsible for managing excess pipeline capacity
• Integration: create EBB using Scada data from diverse sources
Now being discussed at CENAGAS
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• CRE is approving open access pipeline tariffs◦ Commodity, capacity charges in pesos/gj◦ Specificity in total amount invested◦ Sophisticated environmental impact statements
• Midstream, downstream sales by PEMEX will belimited to favor the development of efficient and competitive markets
• Will it be similar to FERC order 436 experience?
“Asymmetric regulation” promised
Market ReportingConsulting
Events
The Argus advantage in changing times
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Dailies rarely exceeded $3/mmBtu east of Rockies
• Underpiped southeast found cheap supply
• New York City had hottest summer in 140 years
• Atlanta was 16pc warmer than normal, Dallas 9pc
• Pipeline expansions and new projects proceed
Hot summer in diverse regions kept prices up
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• TGP Broad Run Flexibility project on line November◦ Antero takes full 590mn cf/d
• Tetco Ohio Pipeline Energy Network on line mid-September o Takeaway of 550mn cf/d from Ohio to Gulf Coast
More backhauls of Marcellus gas expected
illuminating the markets
• Deliveries into Midwestern, NGPL, ANR
• REX Zone 3 daily indexes in a tight range, 3c at most
• Including Lebanon hub in SW Ohio, basis to Chicago has been 8c from REX Zone 3
• Will flood of Marcellus gas tighten that basis?
Argus REX indexes anticipate future market flows
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright © 2015 Argus Media Ltd. All rights reserved.
New supply sources affect major market center
2016 2017 2018 2019 2020 2021 20220.00
0.05
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0.25 Chicago citygates winter basis
July October
$/m
mBt
u
illuminating the markets
• Nipsco index has highest average value of 3 individual Chicago area LDCs
• Nispco averaging about 1c more than Nicor, Peoples
• Joliet hub and NGPL into Vector usually higher than citygates, but not always
• Future seasonal results will show arbitrage possibilities
Chicago-area indexes provide options
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright © 2015 Argus Media Ltd. All rights reserved.
• Rapidly providing new indexes◦ REX◦ Gulf Coast storage hubs◦ Chicago area
• Deep understanding of natural gas market reflected in news and analysis
• No onerous licensing terms
Argus Natural Gas Americas responds to market
illuminating the markets
• Increasing number of utilities and LDCs are including Argus in RFPs
• Producers are transacting on Argus indexes for spot and term supply contracts
• Pipeline companies have amended tariffs to include Argus as an index for capacity release payments
Argus natural gas indexes have taken root
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright © 2015 Argus Media Ltd. All rights reserved.
illuminating the markets
• Gas gets coal market share on price, regulation
• Exports: Mexico now, LNG later
• Supply choices abound: backhauls, pipelines, reserves
• Chicago basis markets already affected
• Argus is a useful tool for midcontinent gas pricing
Domestic, international forces at work in gas
Market ReportingConsulting
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Questions?
Copyright © 2015 Argus Media Ltd. All rights reserved.
Copyright notice Copyright © 2015 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, DEWITT, FMB, FUNDALYTICS, METAL-PAGES, JIM JORDAN & ASSOCIATES, JJ&A, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Limited.
Disclaimer All data and other information presented (the “Data”) are provided on an “as is” basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party’s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.
David GivensHead of Gas and Power Services, Argus Media
Email:Office:Web:
[email protected], DCwww.argusmedia.com