Natural Gas Market Perspectives

Transcription

1 Natural Gas Market Perspectives KIUC 2015 Annual Energy Conference James Beck Petroleum Economist March 19,

2 Fully Integrated Downstream System As of Dec. 31, 2014 Marketing Area MPC Refineries Light Product Terminals MPC owned and Part owned Third Party Asphalt/Heavy Oil Terminals MPC Owned Third Party Water Supplied Terminals Coastal Inland Pipelines MPC Owned and Operated MPC Interest: Operated by MPC MPC Interest: Operated by Others Pipelines Used by MPC Ethanol Facility Biodiesel Facility Tank Farms Butane Cavern Pipelines Barge Dock We are not a producer of gas Refining and Marketing Seven plant refining system with ~1.7 MMBPCD capacity One biodiesel facility and interest in three ethanol facilities One of the largest wholesale suppliers in our market area One of the largest producers of asphalt in the U.S. ~5,400 Marathon Brand retail outlets across 19 states ~590 retail outlet contract assignments primarily in the Southeast and select Northeast states Owns/operates 63 light product terminals and 18 asphalt terminals, while utilizing third party terminals at 118 light product and 10 asphalt locations 18 owned and one leased inland waterway towboats with 199 owned barges and 12 leased barges, 2,210 owned/leased railcars, 142 owned transport trucks Speedway (Retail) ~2,750 locations in 22 states Second largest U.S. owned/operated c store chain Pipeline Transportation Owns, leases or has interest in ~8,300 miles of pipelines One of the largest petroleum pipeline companies in U.S. Part ownership in non operated pipelines includes Explorer, LOCAP, LOOP, Maumee and Wolverine 2

3 Marathon Petroleum Rated Crude Refining Capacity System capacity: 1,731,000 BPCD (approximately 10% of U.S. refining capacity) Garyville (La.) 522,000 BPCD Galveston Bay (Texas) 451,000 BPCD Catlettsburg (Ky.) 242,000 BPCD Robinson (Ill.) 212,000 BPCD BPCD = barrels per calendar day As of Jan. 1, 2015 Detroit (Mich.) 130,000 BPCD Canton (Ohio) 90,000 BPCD Texas City (Texas) 84,000 BPCD U.S. refining on average used between 120 Mcf 160 Mcf of natural gas and between 6.5 MMKwh 8.5 MMKwh of purchased electricity per thousand barrels of crude inputs In fact, we are a large consumer Sources: MPC, EIA ( ) 3

4 Looking Back Over Two Winters Recently returned to 5 year average March 2014, lowest level since 2003 Gas in storage has recovered from record winter of 2014 despite the colder than normal winter of 2015 Source: EIA, MPC Economics 4

5 Natural Gas Futures Hurricane Disruptions Commodity Boom Extreme Winter Cold Rapid Shale Growth Polar Vortex Recession Warm Winter Source: NYMEX The U.S. was supply constrained until

6 Natural Gas Futures Hurricane Disruptions Commodity Boom Extreme Winter Cold Rapid Shale Growth Polar Vortex Recession Warm Winter Source: NYMEX Now becoming demand constrained 6

7 Shale Gas Plays 7 Source: EIA Shale gas plays are located throughout the U.S. 7

8 Long Term Projections Hinge On Shale Gas History AEO 2014 forecast Shale is driving supply growth Source: EIA, Annual Energy Outlook

9 Long Term Projections Hinge On Shale Gas History AEO 2014 forecast adjusted for STEO volume difference Shale is driving supply growth Source: EIA, Annual Energy Outlook 2014; EIA, Short Term Energy Outlook March

10 Shale Gas Expected to Outlast Shale Oil History Projection Increasing gas production projected through next 15+ years Source: EIA, Annual Energy Outlook

11 Lower 48 Onshore Gas Production and Drilling Gas rig counts have plummeted yet production rises due to associated gas and move to pad drilling Source: EIA, Baker Hughes 11

12 Lower Crude Oil Prices Have Led to Less Drilling Oil directed rigs are down 40% from November Gas directed rigs are down 25% from November The decline in oil directed rigs will affect associated gas production Source: Baker Hughes 12

13 Production Growth over the Last Five Years Even if 2015 production is flat, there will be significant YOY growth Source: EIA 2014 grew from 67.4 Bcfd in January to 74.4 Bcfd in December 13

14 Shale Gas Growth Has Been Strong Cycling through Haynesville, Eagle Ford, Marcellus and Utica Current growth is concentrated in a few plays Source: EIA, Drilling Productivity Report (Feb 2015); EIA, Annual Energy Outlook

15 Marcellus and Utica Production Marcellus production has climbed from around 6Bcfdin 2012 to over 16 Bcfd an increase of 167 percent and now accounts for about 20% of total U.S. production Meanwhile, production in Utica has increased eightfold over the last 18 months from about 0.2 Bcfd to 1.8 Bcfd Source: EIA, Drilling Productivity Report (Feb 2015) Appalachian region awash in gas 15

16 Current Problem is How to Move Production Out History Projection Marcellus and Utica supply less responsive to short term prices Source: Bentek Energy, September

17 Marcellus Basis to Henry at Discount Since 2013 Region has historically traded at a premium to Henry Hub With record production, the region is beginning to show significant discounts to Henry Hub Marcellus has the cheapest gas in the country Source: Platts, Inside FERC 17

18 Advantage Continues Despite Additional Pipelines Region has historically traded at a premium to Henry Hub With record production, the region is beginning to show significant discounts to Henry Hub Significant discounts to Henry Hub continue Forward curve suggests price advantage continues Source: Platts, Inside FERC; CME (March 9, 2015) 18

19 Multiple Pipeline Projects Planned to Move Gas Out 1.2 Bcfd 5.8 Bcfd 5.3 Bcfd Source: RBN Energy Spurring a large pipeline buildout 8.2 Bcfd 7.7 Bcfd 19

20 Where Does All of This Gas Go? Power and Industrial Gas Demand Growth Cannot Absorb It All Source: EIA, Annual Energy Outlook

21 Electricity Production as Coal Plants are Retired New Gas Plants and Coal Retirements Source: Bentek Energy (September 2014) Gas replacing coal drives electric generation demand 21

22 Kentucky is on Deck New Gas Plants and Coal Retirements Source: Bentek Energy (September 2014) Gas replacing coal drives electric generation demand 22

23 Natural Gas Is The Electricity Fuel of the Future 5.0 Electricity forecast to grow by 1.0% per year Million Gigawatthours Gas Coal Renewables Oil Nuclear Hydro Electricity demand growth will be met by gas Source: EIA, Annual Energy Outlook

24 Natural Gas Is The Electricity Fuel of the Future 5.0 Electricity forecast to grow by 1.0% per year Million Gigawatthours New nuclear offset by nuclear retirements No new hydro Gas Coal Renewables Oil Nuclear Hydro Hydro and nuclear remain stable, fuel oil declines Source: EIA, Annual Energy Outlook

25 Natural Gas Is The Electricity Fuel of the Future 5.0 Electricity forecast to grow by 1.0% per year Million Gigawatthours Renewables grow by an average of 3.7% per year New nuclear offset by nuclear retirements Gas Coal Renewables Oil Nuclear Hydro 0.0 No new hydro Renewables grow but need baseload support Source: EIA, Annual Energy Outlook

26 Natural Gas Is The Electricity Fuel of the Future Electricity forecast to grow by 1.0% per year Million Gigawatthours Coal share declines from 52% of generation in 1990 to 35% by 2030 Renewables grow by an average of 3.7% per year New nuclear offset by nuclear retirements No new hydro Gas Coal Renewables Oil Nuclear Hydro Source: EIA, Annual Energy Outlook 2014 Coal generation drops to 35% by

27 Natural Gas Is The Electricity Fuel of the Future 5.0 Electricity forecast to grow by 1.0% per year 4.5 Million Gigawatthours Natural gas grows 2% per year accounting for 32% of generation by 2030 Coal share declines from 52% of generation in 1990 to 35% by 2030 Renewables grow by an average of 3.7% per year New nuclear offset by nuclear retirements Gas Coal Renewables Oil Nuclear Hydro 0.0 No new hydro Gas rises to 32% by 2030; sector adds 5.3 Bcfd from 2013 to 2030 Source: EIA, Annual Energy Outlook

28 Petrochemical and Industrial Gas Demand Increases Source: EIA, Annual Energy Outlook 2014 Sector adds 3.3 Bcfd between 2014 and

29 Domestic Demand Will Not Be Able to Use It All Source: EIA, Annual Energy Outlook 2014 Supply outstrips demand by

30 Domestic Demand Will Not Be Able to Use It All What will balance the market? Source: EIA, Annual Energy Outlook 2014 Supply outstrips demand by

31 North American Imports/Exports Shifting Source: EIA, Annual Energy Outlook 2014 U.S. becomes a net exporter by

32 Global Gas Prices the U.S. Advantage * World Bank Assessment; European price includes UK NBP gas since 3/2010 Sources: World Bank, NYMEX 32

33 LNG Export Proposals Grow Not all will be developed Source: EIA (data from the Department of Energy, Office of Fossil Energy; and the Canadian National Energy Board) 33

34 Capacity of U.S. LNG projects Source: FERC 9.2 Bcfd of export capacity currently under construction 34

35 Real Gas Prices Rise by Average of 2.9% per Year ( ) Real prices increase from $3 in 2015 to above $5 in 2030 driven by higher demand and exports Source: EIA, Annual Energy Outlook 2014; EIA, Short Term Energy Outlook March

36 Additional LNG Exports Impact on Gas Prices Marginal impact of additional LNG exports is minimal according to EIA study Source: EIA Annual Energy Outlook 2014, EIA Short Term Energy Outlook March 2015, EIA Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Markets October

37 Thank You! Questions? 37