New England Roundtable Future of Natural Gas in New England and Interaction with Electricity Markets

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New England RoundtableFuture of Natural Gas in
New England and Interaction with Electricity
Markets

• Richard L. Levitan, rll_at_levitan.com
• April 30, 2010

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Key Questions

• Whats the new conventional wisdom and why the
  radical shift?
• Is cheap natural gas a transient phenomenon or
  here to stay?
• Is Marcellus Shale a game changer, one that will
  indefinitely flood the market in the greater
  Northeast?
• Is New Englands gas supply diversified?
• Whats on the horizon for natural gas power
  plants in New England?

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Whats the new conventional wisdom and why the
radical shift?

• Accelerated maturation of conventional resources
  will be more than offset by unconventional gas
  production from CBM and shale gas
• Changes in fracturing and horizontal drilling
  technology allow for less expensive and more
  rapid development
• Decline in WCSB gas coupled with oil sands
  development jeopardizes long haul transport from
  Canada
• Massive increase in worldwide liquefaction
  capability, LNG tankers, and U.S. regas
  capability
• Critical reliance on LNG no longer required to
  ensure commodity balance

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Declining SOEP Production
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WCSB Resource, Reserves and Deliverability
Total Recoverable Resources 491 Tcf
Source NEB
Proved Reserves 56 Tcf Remaining Conventional
Resources 146 Tcf Recoverable Unconventional
Resources 345 Tcf Total Recoverable
Resources 491 Tcf
Source CAPP
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Is cheap natural gas a transient phenomenon or
here to stay?

• Natural gas will remain volatile and should
  remain moderately priced over the long run, i.e.,
  5.00 - 8.00 into-the-pipe
• Traditional oil-to-gas Btu parity ratio is passé
• Basis to New England will reflect increased
  commoditization of gas supplies across North
  America, in particular, growth of Marcellus shale
• Basis blowouts due to periodic deliverability
  constraints are infrequent and short-lived

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Natural Gas Daily Spot Price
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NYMEX Henry Hub Futures
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MassHub On-Peak Forward Prices
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Is Marcellus Shale a game changer, one that will
indefinitely flood the market in the greater
Northeast?

• Proximity to market center, sense of momentum,
  horizontal multi-frac technology a definite game
  changer
• Disparate views re production forecasts, ramp-up

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Marcellus Shale Resources
Marcellus Resource
U.S. Resources1 2,080 Tcf
U.S. Proved Reserves2 244 Tcf
Marcellus Shale Resource3 256 Tcf
Annual U.S. Consumption 23 Tcf
1 Potential Gas Committee, June 18, 2009 2 U.S.
Energy Information Administration 3 Marcellus
Proved Reserves lt 1 Tcf
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Marcellus Shale Production Forecasts
Sources An Emerging Giant Prospects and
Economic Impacts of Developing the Marcellus
Shale Natural Gas Play. T. Considine, R. Watson,
R. Entler, J. Sparks, The Pennsylvania State
University, College of Earth Mineral Sciences,
Department of Energy and Mineral Engineering.
July 24, 2009. Integrated Resource Plan for
Connecticut. The Brattle Group. January 1, 2010.
(Wood Mackenzie)
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Marcellus Shale Production Outlook
Source Williams Partners L.P.
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Is New Englands gas supply diversified?

• Greater intra-regional delivery flexibility than
  ever before
• Decline of Sable Island offset by Repsol via MN
• TCPL long haul transport up for grabs ?Iroquois
  now seasonal carrier
• Algonquin / MN injecting diversity benefits
  across system
• Tennessee also well-positioned for increased
  market share

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Algonquin Flows Peak Day 2009-10
Total Peak Day Receipts 2,200 MDth(12/29/09)
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Algonquin Receipts by Supply Source
1,800
1,600
1,400
NJ Receipts from TETCO / TGP / Transco / Columbia
1,200
1,000
Average Monthly Receipts (MDth/d)
800
600
400
200
0
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
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Whats on the horizon for natural gas power
plants in New England?

• Newer vintage CCs performing well w/o long haul
  primary transportation entitlements
• Very limited growth due to EE / DR / Renewables
• Repowering potential necessitates EDC sponsorship
  and intra-regional buildout