Manual Liq IV

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Events
US gas output growth and implications for Mexico

Euan Craik
5 December 2013
Outline
US shale gas revolution and its impact on supply
and demand
US LNG exports
US exports to Mexico
US natural gas production and consumption trends
US supply catches up with demand

US natural gas supply and demand
75
70
65
60
Supply
Demand
55
50
45
Shale gas output (Bcf/d) EIA
40
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Nymex Henry Hub

16
$/mmBtu
12
0
Dec 03
Dec 05
Dec 07
Dec 09
Dec 11
Dec 13
The American advantage: low natural gas prices
The US will keep energy costs low which will increase its global competitiveness for decades
Oil refining, petrochemicals, fertilizers benefit from both low energy costs, and low
feedstock prices
Net addition to GDP of $380bn-$690bn annually by 2020 -- McKinsey
Copyright 2013 Argus Media Ltd. All rights reserved.
Power generators switch from coal to natural gas

200
10
160
120
80
40
0
2008
2009
2010
Coal
Natural gas
2011
2012
Henry Hub
2013
$/mmBtu
TWh
US average monthly power output by fuel source and Henry Hub

average
Key tight oil and shale gas regions

5/1/2013
12/1/2012
7/1/2012
2/1/2012
9/1/2011
4/1/2011
11/1/2010
6/1/2010
1/1/2010
8/1/2009
3/1/2009
10/1/2008
5/1/2008
12/1/2007
7/1/2007
2/1/2007
9/1/2006
4/1/2006
11/1/2005
6/1/2005
1/1/2005
35
8/1/2004
3/1/2004
10/1/2003
5/1/2003
12/1/2002
7/1/2002
2/1/2002
9/1/2001
4/1/2001
11/1/2000
6/1/2000
1/1/2000
US shale production rising rapidly

Shale gas output (Bcf/d) EIA
30
25
Rest of US
20
Bakken (ND)
Eagle Ford (TX)
15
Marcellus (PA and WV)
Haynesville (LA and TX)
Woodford (OK)
10
Fayetteville (AR)
Barnett (TX)
5
Antrim (MI, IN, and OH)
Fewer natural gas wells being drilled

US rig count
1600
1400
1200
1000
800
600
400
200
0
Oil
Gas
Marcellus leads other shales in drilling efficiency

Natural gas production per rig
6
mn cf/d
5
4
3
2
1
0
Jun-12
Oct-12
Eagle Ford
Feb-13
Haynesville
Jun-13
Marcellus
Permian
Oct-13
US Gulf of Mexico output fell 44pc in 2009-13

Marketed output from US federal leases in the Gulf of Mexico
7
Bcf/d
0
2009
2010
2011
2012
2013
2014
Canada still exports, but less than before

Canada natural gas supply and demand
Bcf/d
20.0
18.0
16.0
14.0
supply
demand
12.0
10.0
8.0
6.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Price differentials are unfavorable for Canada exports

Argus forward curve differentials to Henry
0.15
0.1
$/mmBtu
0.05
Dawn, Ontario
Transco zone 6 NY
-0.05
-0.1
2014
2015
2016
2017
2018
2019
East Coast natural gas glut

Price differentials to Henry
0.00
-0.10
-0.20
$/mmBtu
-0.30
Dominion
-0.40
Columbia Gas
-0.50
-0.60
-0.70
-0.80
2014
2015
2016
2017
2018
2019
Southeast demand rises
Gulf coast LNG export terminals

4-6 Bcf/d potentially
Power generation demand

+45pc in 2013-2020 to 10 Bcf/d
Increase in petrochemical plants

1.4 Bcf/d of new demand from ethylene
production and ammonia production plants
Gulf Coast - gas looking for a new home
Supply displaced from northeast US is

looking for markets
Gulf coast flow to northeast dropped by 4.4
Bcf/d in 2008-13
Offshore Gulf of Mexico output declines

Eagle Ford is key output driver
Proximity to Mexico markets
Bcf/d
Bcf/d
US will become a net gas exporter

Dry gas production
78
76
74
72
70
68
66
-1
64
-2
62
-3
60
-4
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Total imports
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
LNG trade
US, Canada and Mexico still import LNG

GDF Suezs Everett terminal near Boston is the largest US
terminal by volume
Landed prices in $3-$7/mmBtu range in 2013
Most US LNG imports originate in Trinidad
Mexicos Altamira and Manzanillo terminals import at

prices much higher than in the US
$17-$18/mmBtu at 2013 tenders
Price levels set by northeast Asia, south America
Costa Azul is idle

Sempra Energy built it to supply US SoCal markets
Sources of LNG imports into Mexico
US LNG exports New markets for domestic supply

LNG export terminals will create some of the nations
biggest buyers
Four terminals already have authorization to export
6.77 Bcf/d or about 10pc of US consumption in 2012
Sabine Pass is the only terminal under construction

Advanced projects are at existing import terminals
Proposed US LNG export terminals
US LNG export contracts
Company reports
US could start exporting LNG in 2016

LNG imports (+)/exports (-)
1
Bcf/d
-1
-2
-3
-4
2013
2015
2017
2019
2021
2023
2025
2027
2029
Global price spreads are widening

For January 2014
US Henry Hub prices: $3.99/mmBtu
European LNG prices: $13-14/mmBtu
Asian markets: $19/mmBtu
Trinidad supply fob: $15.68/mmBtu

Middle East fob:
$12/mmBtu to Europe
$17/mmBtu to Asia
US LNG exports
Demand pull from Asia supports US export projects
No producer commitments
US offers Henry Hub pricing
Projected export capacity: 4-8 Bcf/d

Actual volumes depend on trends in markets outside
of North America
Competition with Australia, Canada, east Africa
Impact on Mexico
Mexicos import needs grow

Mexico natural gas market balance
11
Bcf/d
3
2000
2002
2004
2006
Supply
2008
Demand
2010
2012
Secretara de Energa de Mexico
Mexico import needs are projected to increase

Projected supply and demand
12
11
Bcf/d
10
9
8
7
6
2014
2015
2016
2017
Supply
2018
2019
Demand
2020
2021
2022
Secretara de Energa de Mexico
US pipeline exports to Mexico are rising

Daily exports up in the
1H of 2013 by 17pc
Current export
capacity is 2.4 Bcf/d
Bidirectional
capacity is 1.9 Bcf/d
2.0
Bcf/d
July exports to Mexico

top 2 Bcf/d
2.5
1.5
1.0
0.5
Jan-09
Jul-10
Jan-12
Jul-13
EIA
US pipeline exports to Mexico are rising

Projected US exports to Mexico
3.5
3.0
Bcf/d
2.5
2.0
1.5
1.0
0.5
0.0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Pipeline projects will expand export capacity by 3 Bcf/d

Midstream
company
Project name
Capacity
mn cf/d
Crossing point
Target date
NET Midstream
NET Mexico
2,100
Texas/Tamaulipas
Dec-14
Kinder Morgan
Sierrita Lateral
210
Arizona/Sonora
Sep-14
Spectra Energy
South Texas
expansion
300
Texas/Tamaulipas
Jun-14
Energy Transfer
Partners
Houston Pipe Line
140
Texas/Tamaulipas
Jun-14
Kinder Morgan
Willcox expansion
275
Arizona/Sonora
Jan-14
Kinder Morgan
Samalayuca
97
Texas/Chihuahua
Jul-13 (completed)
Kinder Morgan
Norte Crossing
366
Texas/Chihuahua
Jun-13 (completed)
Company reports
US-Mexico pipeline crossing points
Exports to Mexico put pressure California prices

0.20
$/mmBtu
0.15
0.10
0.05
0.00
-0.05
-0.10
2014
2015
2016
Transco zone 6 NY
2017
SoCal Citygates
2018
2019
And in Texas too

-0.05
2014
2015
2016
2017
2018
2019
$/mmBtu
-0.10
-0.15
-0.20
-0.25
Tetco South Texas zone
Tennessee
Waha
NGPL South Texas
Mexico energy reform is a key factor

The effect of energy reform is uncertain
Pemex forecasts 2014-18 output at 5.3 Bcf/d
Mexican output will increasingly compete with

imports from the US
Demand will increase regardless of supply sources
Key takeaways
US natural gas supply is rising
Fastest growth is in Appalachia and Texas shales
US shale gas will drive:
LNG exports
Pipeline exports to Mexico
Argus Natural Gas Americas

Began 2009
US & Canada
100 daily indexes

80 month-ahead (bid
week) indexes
RFPs issued using Argus
indexes
Any questions?
Euan Craik
CEO, Argus Americas
Euan.craik@argusmedia.com
Phone:
Office:
Copyright notice
Copyright 2013 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, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Limited. Visit www.argusmedia.com/trademarks for more information.
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 partys 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.

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Manual Liq IV

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Energy and commodity price benchmarking and market insights

US gas output growth and implications for Mexico

illuminating the markets

US natural gas production and consumption trends

US supply catches up with demand

Shale gas output (Bcf/d) EIA

illuminating the markets

Nymex Henry Hub

illuminating the markets

The American advantage: low natural gas prices

illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

Power generators switch from coal to natural gas

illuminating the markets

US average monthly power output by fuel source and Henry Hub

Key tight oil and shale gas regions

illuminating the markets

illuminating the markets

US shale production rising rapidly

Eagle Ford (TX)

Haynesville (LA and TX)

Fewer natural gas wells being drilled

illuminating the markets

Marcellus leads other shales in drilling efficiency

illuminating the markets

US Gulf of Mexico output fell 44pc in 2009-13

illuminating the markets

Canada still exports, but less than before

illuminating the markets

Price differentials are unfavorable for Canada exports

East Coast natural gas glut

illuminating the markets

Southeast demand rises

Gulf coast LNG export terminals

Power generation demand

Increase in petrochemical plants

Gulf Coast - gas looking for a new home

Supply displaced from northeast US is

Offshore Gulf of Mexico output declines

US will become a net gas exporter

illuminating the markets

US, Canada and Mexico still import LNG

Mexicos Altamira and Manzanillo terminals import at

Costa Azul is idle

illuminating the markets

Sources of LNG imports into Mexico

illuminating the markets

US LNG exports New markets for domestic supply

Sabine Pass is the only terminal under construction

illuminating the markets

Proposed US LNG export terminals

illuminating the markets

US LNG export contracts

illuminating the markets

US could start exporting LNG in 2016

illuminating the markets

Global price spreads are widening

Trinidad supply fob: $15.68/mmBtu

Copyright 2013 Argus Media Ltd. All rights reserved.

US offers Henry Hub pricing

Projected export capacity: 4-8 Bcf/d

illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

Mexicos import needs grow