Jeffrey Schauger GENERAL MANAGER INTERSTATE MARKETING NATIONAL FUEL GAS SUPPLY CORPORATION
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Transcript of Jeffrey Schauger GENERAL MANAGER INTERSTATE MARKETING NATIONAL FUEL GAS SUPPLY CORPORATION
Jeffrey SchaugerGENERAL MANAGER
INTERSTATE MARKETING
NATIONAL FUEL GAS SUPPLY CORPORATION
National Fuel Gas Supply Corporation Empire Pipeline, Inc.
Marcellus Shale: Changing Gas Supply Dynamics and Pipeline Infrastructure
A Pipeline & Storage Perspective
Safe Harbor for Safe Harbor for Forward Looking StatementsForward Looking Statements
This presentation may contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995, including statements regarding future prospects, plans, performance and capital structure, anticipated capital expenditures and completion of construction projects, as well as statements that are identified by the use of the words “anticipates,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “predicts,” “projects,” “believes,” “seeks,” “will,” “may,” and similar expressions. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company’s expectations, beliefs and projections contained herein are expressed in good faith and are believed to have a reasonable basis, but there can be no assurance that such expectations, beliefs or projections will result or be achieved or accomplished.
In addition to other factors, the following are important factors that could cause actual results to differ materially from results referred to in the forward-looking statements: changes in economic conditions, including economic disruptions caused by terrorist activities, acts of war or major accidents, and downturns in economic activity including national or regional recessions; changes in demographic patterns and weather conditions, including the occurrence of severe weather such as hurricanes; changes in the availability and/or price of natural gas or oil and the effect of such changes on the accounting treatment of derivative financial instruments or the valuation of the Company’s natural gas and oil reserves; uncertainty of oil and gas reserve estimates; ability to successfully identify, drill for and produce economically viable natural gas and oil reserves, including shortages, delays or unavailability of equipment and services required in drilling operations; significant changes from expectations in the Company’s actual production levels for natural gas or oil; changes in the availability and/or price of derivative financial instruments; changes in the price differentials between various types of oil; inability to obtain new customers or retain existing ones; significant changes in competitive factors affecting the Company; changes in laws and regulations to which the Company is subject, including changes in tax, environmental, safety and employment laws and regulations; governmental/regulatory actions, initiatives and proceedings, including those involving acquisitions, financings, rate cases (which address, among other things, allowed rates of return, rate design and retained gas), affiliate relationships, industry structure, franchise renewal, and environmental/safety requirements; unanticipated impacts of restructuring initiatives in the natural gas and electric industries; significant changes from expectations in actual capital expenditures and operating expenses and unanticipated project delays or changes in project costs or plans; the nature and projected profitability of pending and potential projects and other investments, and the ability to obtain necessary governmental approvals and permits; occurrences affecting the Company’s ability to obtain funds from operations, from borrowings under our credit lines or other credit facilities or from issuances of other short-term notes or debt or equity securities to finance needed capital expenditures and other investments, including any downgrades in the Company’s credit ratings; ability to successfully identify and finance acquisitions or other investments and ability to operate and integrate existing and any subsequently acquired business or properties; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; changes in the market price of timber and the impact such changes might have on the types and quantity of timber harvested by the Company; significant changes in tax rates or policies or in rates of inflation or interest; significant changes in the Company’s relationship with its employees or contractors and the potential adverse effects if labor disputes, grievances or shortages were to occur; changes in accounting principles or the application of such principles to the Company; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; changes in actuarial assumptions and the return on assets with respect to the Company’s retirement plan and post-retirement benefit plans; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide post-retirement benefits; or increasing costs of insurance, changes in coverage and the ability to obtain insurance.
For a discussion of these risks and other factors that could cause actual results to differ materially from results referred to in the forward-looking statements, see “Risk Factors” in the Company’s Form 10-K for the fiscal year ended September 30, 2009 and and the Company’s Form 10-Q for the quarter ended December 31, 2009. The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
National Fuel Gas CompanyNational Fuel Gas CompanyPrincipal BusinessesPrincipal Businesses
E&P
Seneca Resources Corporation
National Fuel Gas Company
Timber
Highland Forest
Resources, Inc. and NE Division of
Seneca Resources
Corp.
Energy Mktg
National Fuel
Resources, Inc.
Utility
National Fuel Gas
Distribution Corporation
P&S
National Fuel Gas Supply
Corporation &
Empire Pipeline
MidstreamNational Fuel Gas
Midstream Corporation
Own/Operate 27 Fields; Co-Own/Operate 4 FieldsStorage Capacity ~70 bcf
PL&S: ~3,000 Miles of Pipeline, 60,000+
hp
LDC: ~725,000 Customers Served
throughout Western NY and
Northwestern PA
Niagara
CANADACANADA
Lake OntarioLake OntarioLake Ontario
LakeErie
LakeLakeErieErie
Ellisburg
NYNY
PAPA
PAPAOH
OH
Chippawa
Corning
A-5 LineIndependence
Millennium
Tuscarora Storage
TCPL Interconnects:Niagara, Chippawa
Leidy Interconnects:Transco, TETCO, DTI
National Fuel Gas Company
NFGSC System Storages
NFGSC System Pipelines
Empire State Pipeline
Interconnects
Empire Pipeline
Leidy
Nati
onal
Fue
l’s P
ipel
ine
& S
tora
ge S
yste
m
Ellisburg Interconnects:TGP, DTI
Empire Connector
Bristoria Interconnect:TETCO – M2
Corning Interconnects:Empire, Millennium
FACT: North American Shale has dramatically altered the domestic gas Supply picture.
Shale Gas Plays in the United
States
FACT: North American Shale has dramatically altered the domestic gas Supply picture.
Relatively low Unconventional costs vs Conventional
The Key- Technological advances
Shale production has grown from 3% of the U.S. Gas Supply in 2005 to 20% in early 2010
In 2009 US Local Natural gas production highest since 1973.
PA production has doubled since the pre-shale days
Marcellus - “The Beast in the Marcellus - “The Beast in the East”East”
Recoverable area > 95,000 sq mi
Depth 5,000 ft +, Thickness 50 ft – 250 ft
Potentially the largest field in the U.S. - recoverable reserves estimated in the 100’s of TCFs
Low breakeven costs – maybe lowest of major U.S. shale plays
Marcellus Shale play is vast – and it’s still early
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045
MM
cf/d
0
500
1,000
1,500
2,000
2,500
3,000
# Wells F
irst Delivered
Production Forecast Wells First Delivered
Source: Black & Veatch Analysis
Marcellus Shale Production Marcellus Shale Production ForecastForecast
(Based on Conservative 50 Tcf Recoverable Reserve Estimate)(Based on Conservative 50 Tcf Recoverable Reserve Estimate)
Other Telling Indicators….Other Telling Indicators…. What large players are saying:
“…We continue to ramp up our activities in the Marcellus…” “…accelerate sharply our development of the Marcellus.. “ “…able to utilize new drilling techniques that allows (us) to affordably
reach gas supplies in the Marcellus…that previously had been too expensive to tap.’
Producers taking on firm capacity positions to ensure production flows: Range, EQT, Chesapeake, Statoil, Cabot, East Resources, Fortuna
Majors and investors jumping into the Marcellus fray
Pittsburgh area exploding – tightening labor market
TGP 300 Line
EASTHEREFORD
EASTHEREFORD
DRACUTDRACUT
DOVERDOVER BROOKFIELDBROOKFIELD
RAMAPORAMAPOELLISBURGELLISBURG
LEIDYLEIDY
DAWNDAWN
NIAGARANIAGARA
CHIPPAWACHIPPAWA
NAPIERVILLENAPIERVILLE
IROQUOISIROQUOIS PHILLISBURGPHILLISBURG
ST. CLAIRST. CLAIR
Eastern Mainline Export Points and Other Major Pipelines
Pre-Marcellus Gas Supply Sources in North America
Pre-Marcellus Gas Supply Sources in North America
Pre-Marcellus Gas Supply Sources to the Northeast
LEIDY
Pennsylvania
New York
Traditionally gas supply sources have come from Canada, the Rockies, and the Gulf Coast Region.
NIAGARA
ONTARIO
Rockies
Midcontinent
Southeast/ Gulf
Displacem
ent
Displacement
Displacement
D
ispl
acem
ent
Appalachia
Post Marcellus Gas Supply Sources in North America
Post-Marcellus Gas Supply Sources to the Northeast
LEIDY
Pennsylvania
New York
Marcellus Shale has resulted in the
traditional gas supply being displaced.
NIAGARA
ONTARIO
Trends…
NFGSC SystemNFGSC SystemIncreased Producer ActivityIncreased Producer Activity
79
104
161
0
20
40
60
80
100
120
140
160
180
2003 2004 2005 2006 2007 2008 2009 2010
NFGSC Interconnect Requests
55% increase in IC requests from 2009-2010
NFGSC System NFGSC System Volumes Associated with IC Volumes Associated with IC
RequestsRequests
1,214,750
56,600
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Cum
ulati
ve E
xp D
aily
Vol
(MCF
D)
Producer Requested Flow Date
Interconnect Request Volumes
Basis Differential ShiftBasis Differential Shift
-0.277
-0.145 -0.130-0.083
-$0.60
-$0.40
-$0.20
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
Ap
r-06
Jun
-06
Au
g-0
6
Oct
-06
Dec
-06
Feb
-07
Ap
r-07
Jun
-07
Au
g-0
7
Oct
-07
Dec
-07
Feb
-08
Ap
r-08
Jun
-08
Au
g-0
8
Oct
-08
Dec
-08
Feb
-09
Ap
r-09
Jun
-09
Au
g-0
9
Oct
-09
Dec
-09
Feb
-10
Ap
r-10
Jun
-10
Au
g-1
0
Domininon SP to Niagara Basis (Average Monthly Prices)
Su
mm
er
12
Su
mm
er
11
Estimates Derived from Forward Basis Numbers
Win
ter
11
/12
Win
ter
10
/11
Summer 06 Avg. 0.119
Winter 06 /07 Avg. (0.028)
Summer 07 Avg. 0.092
Winter 07/08 Avg. (0.145)
Summer 08 Avg. 0.122
Winter 08/09 Avg. (0.115)
Summer 09 Avg. (0.07)
Winter 09/10 Avg. (0.136)
Summer 10 Avg. (0.198)
Sept
-10
Canadian ImportsCanadian Imports
Source: EIA
98,344
31,019
44,252
36,271
0
20,000
40,000
60,000
80,000
100,000
120,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Mcf
US LNG Imports
Effects of Shales on LNG ImportsEffects of Shales on LNG Imports
Source: Bentek/EIA
Observations…Observations… “Pipeline Geology”
Displacement
Significant gas supply being added to large long-haul pipes: TGP, TETCO, TCO, DTI, NFG
Shift in flows due not only to Marcellus but effects of REX, LNG, and other shale plays
The Interstate Pipeline System Downstream of Storage (Ellisburg/Leidy and Oakford) is at Capacity
Key Market Segment: Power Gen Markets in NYC, Mid-Atlantic, and Ontario. Rate of growth?
Overall market will grow – rate depends on economy, but unlikely to match increase in gas supply in market area.
……And Effects of Marcellus in the And Effects of Marcellus in the NortheastNortheast Pricing DynamicsPricing Dynamics
New West to East pipeline infrastructure will increase the Western Basis and put downward pressure on Eastern Market Prices
Overall flattening of basis and decreased price volatility.
FlowsFlows
Displacement of traditional gas supply, and reverse flow south Displacement of traditional gas supply, and reverse flow south to northto north
Focus on Unconventional playsFocus on Unconventional plays
Reduced reliance on LNGReduced reliance on LNG
Shifting plans related to Alaskan gas supply Shifting plans related to Alaskan gas supply
InfrastructureInfrastructure
NE Markets have competitive advantage as transportation and fuel costs decrease from transporting gas a shorter distance
Long haul pipelines will likely see lower utilization and decreased revenue on pipelines from the Gulf to the Northeast
Infrastructure, Infrastructure, Infrastructure.
Effects of Marcellus Shale in the Effects of Marcellus Shale in the NortheastNortheast
34 Potential New Projects Planned through 2014
Total Increased Potential Capacity of 13,693 MMcf/d
Changing the Pipeline Infrastructure in the NortheastChanging the Pipeline Infrastructure in the Northeast
Source: Bentek
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
0
5
10
15
20
25
30
35
40
2010 2011 2012 2013 2014
MM
cf/d
Cap
acit
y
Proj
ects
Northeast Expansion Projects
New Pojects Total Expansion Capacity (MMcf/d)
2010 Pipeline Expansion 2010 Pipeline Expansion Projects MapProjects Map
Source: Bentek
National Fuel GasNational Fuel GasPL&S Infrastructure Expansion PL&S Infrastructure Expansion PlansPlans
Y-M53 to Leidy
Lamont Compressor Station
Line N Expansion
Northern Access Expansion
Tioga County Extension
31
PIPELINE & STORAGE EXPANSION INITIATIVES
Y-M53 Direct Interconnects
Initial Capacity 100,000 Dth/d
In-Service Date November 2010
Producer Commitments of 20,000 - others Pending
Y-M53 DIRECT INTERCONNECTS
32
LAMONTCOMPRESSOR
STATION PHASE 1 & 2
PIPELINE & STORAGEEXPANSION INITIATIVES
Lamont Compressor Station Phase I & II
Planned Capacity 40,000 Dth/d (I)50,000 Dth/d (II)
Planned Compression (2 units) 1,150 HP (I)1,700 HP(II)
Anticipated In-Service Date July 2010 (I)June 2011 (II)
Estimated CAPEX Investment ~$6 MM~$7 MM
LAMONTCOMPRESSOR
STATION PHASE I & II
33
LINE “N”EXPANSION PHASE I & II
PIPELINE & STORAGE EXPANSION INITIATIVES
Line “N” Expansion Phase I & II
Planned Capacity 160,000 Dth/d (I)150,000 Dth/d (II)
Planned Compression 4,700 HP (I)13,000 HP (II)
Anticipated In-Service Date Sept 2011 (I)Nov 2012 (II)
Estimated CAPEX Investment $23 MM (I)$30 MM (II)
34
NATIONAL FUEL PIPELINE & STORAGE EXPANSION INITIATIVES
NORTHERN ACCESS EXPANSION
Northern Access Expansion
Planned Capacity 320,000 Dth/d
Planned Compression- Ellisburg 12,000 HP
Planned Compression- East Aurora 2,300 HP
Anticipated In-Service Date Fall 2012
Estimated CAPEX Investment $60 MM
Full Producer Commitment
35
PIPELINE & STORAGE EXPANSION INITIATIVES
Tioga County Extension Phase I & II
Planned Capacity 350,000 Dth/d (I)260,000 Dth/d (II)
Anticipated In-Service Date September 2011 (I)2012/2013 (II)
Estimated CAPEX Investment $47 MM (I)$125 MM (II)
TIOGACOUNTY
EXTENSION PHASE I & II
36
WEST TO EAST
APPALACHIANLATERAL
LAMONTCOMPRESSOR
STATION PHASE I & II
TIOGACOUNTY
EXTENSION PHASE I & II
LINE “N”EXPANSION PHASE I & II
PIPELINE & STORAGEEXPANSION INITIATIVES
NORTHERN ACCESS EXPANSION
Y-M53 DIRECT INTERCONNECTS
Infrastructure and Transporter-Infrastructure and Transporter-related Challengesrelated Challenges
GQ
Creditworthiness
Timelines
Shifting Pipeline Grid Dynamics & Valuation
Producer risk tolerances
IC requests
On the Horizon….On the Horizon….
New supply areas will continue crowd out traditional ones “Non-firm” production eventually at risk All bets off with regard to traditional flows, basis, and
commodity pricing - price and gas supply-driven changes Certain oversupplied producing areas/pipes could see
price bloodletting Canadian markets will soon gain access to Marcellus
supply Large need for midstream/gathering infrastructure Utilities: encouraged by proliferation of Marcellus gas
supply but will adjust portfolios with caution
Thank YouThank You
Please visit us at www.nationalfuelgas.com