North American Oil, Gas, and NGL Market Trends and Midstream Infrastructure Development Full Speed Ahead?

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1 North American Oil, Gas, and NGL Market Trends and Midstream Infrastructure Development Full Speed Ahead? Presented at the 2015 Gas/Electric Partnership Conference Houston, Texas February 18, 2015 Kevin Petak Vice President, O&G Markets ICF International

2 Disclaimer This presentation provides views of ICF International. The presentation includes forward-looking statements and projections. ICF has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual market results to differ materially from the projections, anticipated results, or other expectations expressed in this report. 1

3 Contents ICF s Outlook for North American Oil, Gas, and NGL Trends Potential Midstream Infrastructure Development 2

4 ICF s North American Oil, Gas, and NGL Market Outlook Major Themes Oil, gas, and NGL production growth will continue, driven by shale plays. Oil prices unlikely to rebound to $100 per barrel, and oil price volatility is expected near term over-supply of oil likely to persist for next 12 months and U.S. refinery runs will remain relatively constant in the longer term. Natural gas prices will remain relatively low over the next 12 to 24 months but increase as demand growth strengthens post Total gas use grows by about 50% over the next 20 years, but there are risks to market development. Natural gas liquids prices, especially ethane prices could remain relatively low NGL market development is uncertain but important to accommodate growing production. Midstream infrastructure development robust, as infrastructure is needed to accommodate growing production and support market growth. Oil infrastructure development less certain due to reduced oil prices. 3

5 Assumed Oil Prices for ICF s Market Projections $120 Refiners Acquisition Cost of Crude (RACC), 2013$/bbl Currently assumed price much lower than our Q4 projection Price not likely to return to $100 per barrel level, but future is uncertain $100 $80 $60 $40 $20 Q Q $

6 U.S. and Canada Oil Production Million barrels per day Higher Oil Prices Lower Oil Prices Shale Resources Other Onshore and Offshore Western Canada Oil Sands Total production continues to rise, but at a slower pace than recently observed. Production from shale resources continues to grow and peaks around Oil Sands production from Western Canada continues to increase, but the outcome is very sensitive to oil prices. Non-shale onshore and offshore production continues to decline. 5

7 Projected Oil Production by Area/Play Million barrels per day Shale Peak Bakken and Niobrara Eagle Ford West Texas Shales Gulf of Mexico Western Canada All Other Production from shale resources peaks between 2017 and Development at risk in some plays and areas, depending on oil price movement. 6

8 Oil Flow Dynamics from ICF Infrastructure Study for the INGAA Foundation 7

9 Projected U.S. and Canada Natural Gas Production Average annual billion cubic feet per day Other Resources Shale Resources Total production rises by about 2 percent per year. Shale resources account for nearly three-quarters of the total by

10 Natural Gas Developed from Shale Plays U.S. and Canada Shale Gas Production Average annual billion cubic feet per day Marcellus and Utica Western Canada Eagle Ford Haynesville All Other Shale gas production doubles over the next 20 years. The Marcellus and Utica account for roughly 40% of incremental production. Activity swings back toward dryer plays as gas prices firm. 9

11 Projected Natural Gas Use Near-term gas market growth mostly comes from LNG and Mexican exports U.S. and Canada Gas Demand Average annual billion cubic feet per day Mexican Exports LNG Exports Power sector growth is very significant driven by coal plant retirement. 80 Power 60 Industrial 40 Commercial 20 Residential 0 Other

12 Regional Flow Changes in ICF s Projection Marcellus is a game changer. Western Canada struggling to find markets. Rockies gas forced westward. Gulf Coast gas stays home. 11

13 2013$/MMBtu Natural Gas Prices $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 Perfect Storm Leads to Unsustainably Low Gas Prices Annual Average Henry Hub Price Cold Winter Pops 2014 Gas Price Supply Rationalization $ Historical Demand Surge & LNG Exports Ramp Up Stable Prices Market Growth and Supply Growth in Lockstep ICF Projected Nuclear Retirements and Resource Depletion 12

14 NGL Development U.S. and Canada NGL Production Million barrels per day NGL Production by Liquid Type Million barrels per day Marcellus and Utica Western Canada Eagle Ford West Texas Shales All Other Ethane Propane Butanes+ Like gas production, NGL production doubles over the next 20 years. The Marcellus, Utica, and Western Canada account for the majority of the growth. Most significant growth is in the lighter ends development of markets for those liquids is important. 13

15 NGL Flow Dynamics from ICF Infrastructure Study for the INGAA Foundation 14

16 Capital Expenditures for Midstream Infrastructure from ICF s Study for the INGAA Foundation 15

17 Variance of Well Completions with Oil Prices 16

18 Projected U.S. and Canada Pipeline Mileage, $100/Bbl $80/Bbl $60/Bbl New or expanded gas and liquids mainline capacity 46,456 39,125-16% 27,952-40% Gas inter-nodal 8,137 7,892-3% 6,730-17% Gas intra-nodal 6,061 5,625-7% 4,675-23% Oil pipeline 17,745 12,558-29% 5,179-71% NGL Inter-nodal 8,538 7,687-10% 6,910-19% NGL Intra-nodal 5,976 5,363-10% 4,459-25% New laterals 10,634 10,032-6% 9,503-11% Processing plant laterals 4,247 3,936-7% 3,489-18% Gas power plant laterals 5,505 5,520 0% 5,625 2% Gas storage laterals % % Crude oil storage laterals % % New oil and gas gathering lines 244, ,549-12% 193,231-21% Gas gathering line 153, ,982-12% 121,766-21% Oil gathering line 90,413 80,566-11% 71,465-21% Total 301, ,705-12% 230,685-23% 17

19 ICF s Midstream Infrastructure Outlook Key Conclusions Significant growth in gas and NGL markets expected market growth from a number of sources. Well completion activity remains robust, but oil well activity less certain than gas well activity very dependent on oil prices. Midstream infrastructure development has been and is likely to remain robust. Gas pipeline development fairly certain. Oil pipeline development not nearly as certain depends on oil prices. NGL pipeline development still a wildcard. 18

20 Uncertainties and Risks for Infrastructure Development Low/falling oil prices Clean Power Rule 111(d) Methane emissions Integrity Management Standards Lack of market growth Limitations on energy exports Environmental and landowner opposition 19

21 Conclusions Supply growth likely to continue, particularly from shale resources. Growth from some areas like the Marcellus will remain robust. Oil prices lower, and price volatility is expected. Natural gas prices currently low, but likely to firm with market growth. NGL prices will move with gas and oil prices. Gas and NGL market development is important. Development of exports important, but riskier with lower oil prices. Midstream development continues at a robust pace, but lower oil prices could reduce the rate of growth, particularly for investments that are oil-related. 20

22 THANK-YOU 21