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Relevant • Independent • Objective

PAGE 1

April 2010

CERI Commodity Report - Natural Gas

CERI COMMODITY REPORT - NATURAL GAS

Editor-in-Chief: Mellisa Mei ([email protected])

CONTENTS

FEATURED ARTICLE................................................ 1

NATURAL GAS PRICES ........................................... 4

WEATHER ............................................................... 6

CONSUMPTION AND PRODUCTION ......................... 8

TRANSPORTATION .................................................10

STORAGE ................................................................12

LIQUEFIED NATURAL GAS ......................................15

DRILLING ACTIVITY................................................17

2010 INDUSTRY EVENTS ........................................19

US LNG Capacity Update

In 2007, the US Federal Energy Regulatory Commission(FERC) and the US Maritime Administration (MARAD) hadapproved the construction and operation of twenty-fiveliquefied natural gas (LNG) re-gasification projects. Anotherfourteen LNG re-gasification projects were proposed tothe FERC and the MARAD, and six were deemed potentialprojects. If all of the approved, proposed, and speculativeprojects had proceeded as planned, the US LNG importcapacity would have increased by 58.8 BCFPD to 64.6BCFPD, and exceeded the average volume of natural gasconsumed in the US last year. Logically, not all of the projectsmoved forward. In fact, only seven projects (two expansionprojects and five new LNG re-gasification facilities) havecome to fruition. Since the beginning of 2007, the numberof operating LNG re-gasification facilities has doubled, andby the end of 2010, LNG import capacity will beapproximately three times greater than that in 2007. Figure1 illustrates the locations of the ten existing LNG re-gasification facilities in the US

Figure 1: Existing US LNG Re-gasification Terminals

Source: FERC, CERI.

The advent of highly efficient drilling techniques, targetingunconventional natural gas resources, has substantiallyaltered the North American natural gas supply outlook.With proved reserves of natural gas increasing annually,the perceived need for importing large volumes of LNG tosupplement domestic natural gas production has greatlydiminished. Therefore, it may come as a surprise to manyreaders that in 2010, the list of approved, proposed, andspeculative projects, while smaller than that of 2007, stillexceeds rational expectations, given the extremely lowutilization rates that have been observed at the existingUS LNG import terminals. Today, twenty LNG re-gasificationprojects have been approved by the FERC and the MARAD(seventeen of the approved projects are currently not inthe construction phase), seven projects are beingproposed, and six projects are considered speculative. Areall of these projects needed? No, but a handful ofstrategically located LNG import terminals may still be ableto produce economic profits, and help to reduce upwardprice volatility during peak consumption periods, whichwill be necessary in order to grow US demand for naturalgas in new markets (e.g., CNG/LNG vehicles, aviation).

On March 10, the GDF Suez Neptune shuttle and re-gasification vessel (SRV) arrived at the newest US LNGimport terminal, the Neptune Deepwater Port, located offthe coast of Gloucester, Massachusetts. This facility wasthe tenth LNG import terminal to become operational inthe US, and increased the nation’s total LNG re-gasificationcapacity to 16 BCFPD.


PAGE 2

Three additional LNG import facilities are currently underconstruction, and are expected to become operational bythe end of 2012. Approximately 91 percent of this newcapacity will be located in the US Gulf of Mexico (GOM)region, bringing the cumulative total GOM re-gasificationcapacity to 13.4 BCFPD by 2012. The LNG re-gasificationcapacity on the east coast of the US will increase slightlyin 2012, with the completion of phase two of the ElbaIsland expansion project, to 6.5 BCFPD. Figure 2 depictsthe growth in LNG re-gasification capacity, and averageannual LNG imports, between 2008 and 2012. Data forimports of LNG between 2010 and 2012 were obtainedfrom the Reference Case of the US Energy InformationAdministration’s (EIA) 2010 Annual Energy Outlook.1

Figure 2: US LNG Imports and Re-GasificationCapacity, 2008-2012

Source: EIA, FERC, US DOE.

Between January and March 2010, US LNG imports totaled139.3 BCF, or 1.6 BCFPD, with the vast majority of supplies(84 percent) landing at LNG re-gasification terminalslocated in the eastern US region. Suez LNG’s re-gasificationterminal, located in Everett, Massachusetts, has received29 percent, or 40 BCF, of the cumulative total US LNGimports this year. During the first three months of 2010,total LNG imports were 57 percent, or 50.8 BCF, higherthan LNG imports in the first quarter of 2009, and 84percent, or 63.6 BCF, higher than imports in the first quarterof 2008. Figure 3 compares the first quarter US LNG importvolumes, in addition to the average LNG import capacityutilization rates, from 2008 to 2010.

Figure 3: First Quarter LNG Import Volumes andAverage Utilization Rates, 2008-2010

Source: US DOE.

A surplus in the global LNG market has resulted in relativelyhigher US LNG imports over the past two years. Despitethe increase in LNG imports, however, utilization rates atthe existing LNG import facilities remain low because theUS LNG re-gasification capacity has grown at a much fasterrate. The average LNG import capacity during the firstquarter of 2010 was 15.2 BCFPD, up from an average of10.7 BCFPD in the first quarter of 2009, and 6.6 BCFPD inthe first quarter of 2008. Approximately 90 percent, or13.6 BCFPD, of the average US LNG import capacity in thefirst quarter of 2010 was not utilized. Between Januaryand March 2009, the total unutilized capacity was slightlyhigher, at 91 percent.

While LNG shipments to eastern US facilities haveconsistently exceeded LNG volumes shipped to the GOMregion, most of the LNG re-gasification capacity additionshave taken place in the GOM region. With the exception oftwo expansions of existing LNG facilities (Cove Point andElba Island), and the recently commissioned NeptuneDeepwater Port, all capacity expansions since 2008 havebeen located in the GOM region. Figure 4 provides abreakdown of capacity utilization rates, by region, between2008 and 2010.


PAGE 3

Figure 4: Annual Capacity Utilization Rates byRegion, 2008-2010

Source: US DOE, EIA.

Expectations of future LNG imports will determine if thecurrent LNG re-gasification capacity will be sufficient.According to the Reference Case of the EIA’s 2010 AnnualEnergy Outlook, US annual LNG imports are projected topeak in 2021, at 1.5 TCF (4.1 BCFPD), and decline to 0.8TCF (2.3 BCFPD) in 2035.2 An alternative, high LNG casewould arise if restrictions were placed on low permeabilitygas drilling in the US, and triple the projected annual supplyof natural gas from imported LNG to 2.4 TCF (6.6 BCFPD).3

Assume, for the sake of argument, that no new LNG re-gasification facilities were constructed in the US after 2012.US LNG imports in 2021, under the EIA’s Reference Case,would imply a total utilization rate of approximately 21

percent. However, if 100 percent of the projected 4.1BCFPD of LNG imports in 2021 were to land in the USeast, the region’s capacity utilization rate would increaseto 63 percent, while the utilization rate of the GOM facilitieswould fall to zero. In 2035, with the US LNG import capacityheld constant at 2012 levels, the US re-gasification facilitiesin the GOM region could absorb all of the EIA’s projectedLNG imports, under the high LNG scenario, and the capacityutilization rate in the region would still remain below 50percent. Conversely, the eastern US LNG re-gasificationfacilities, operating at 100 percent capacity, could onlyaccommodate 98 percent of the EIA’s projected LNGimports, under the high LNG case.

Of the thirty approved (not under construction), proposed,and potential LNG re-gasification projects, totaling 42.7BCFPD, only a small fraction will be constructed. Offshorefacilities, particularly those that are located in the easternand western US regions, will have a relatively higherprobability of success.

Endnotes

1US EIA 2010 Annual Energy Outlook, Year-by-YearReference Case Tables (2007-2035), May 11, 2009, http://www.eia.doe.gov/oiaf/aeo/aeoref_tab.html, Accessed onMay 11, 2010.2Ibid.3Ibid


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ug-0

9O

ct-0

9D

ec-0

9Fe

b-10

Apr

-10

East

Wes

t

Can

adia

n S

tora

ge b

y R

egio

nB

CF,

Mon

th E

nd

0

500

1,00

0

1,50

0

2,00

0

2,50

0

3,00

0

3,50

0

4,00

0

4,50

0

JF

MA

MJ

JA

SO

ND

5-Ye

ar A

vg.

2009

2010

BC

F, M

onth

End

US

Low

er-4

8 W

orki

ng G

as S

tora

ge

0

500

1,00

0

1,50

0

2,00

0

2,50

0

3,00

0

3,50

0

4,00

0

Apr

-09

Jun-

09A

ug-0

9O

ct-0

9D

ec-0

9Fe

b-10

Apr

-10

Prod

ucin

g Re

gion

Wes

tEa

st

BC

F, M

onth

End

US

Sto

rage

by

Reg

ion


PAGE 13

SOU

RCE

: C

ERI,

Pla

tts

Gas

Dai

ly.

SOU

RCE

: C

ERI,

Pla

tts

Gas

Dai

ly.

SOU

RCE

: C

ERI,

Pla

tts

Gas

Dai

ly.

-100-8

0

-60

-40

-20020406080

JF

MA

MJ

JA

SO

ND

WC

_IJ_

WD

5-Ye

ar A

vg.

2009

2010

BC

F, M

onth

EndW

este

rn C

anad

a S

tora

ge

Inje

ctio

ns/W

ithd

raw

als

-80

-60

-40

-20020406080

JF

MA

MJ

JA

SO

ND

5-Ye

ar A

vg.

2009

2010

Eas

tern

Can

adi

an S

tora

ge

Inje

ctio

ns/W

ithd

raw

als

BC

F, M

onth

End

-150

-100-5

0050100

150

JF

MA

MJ

JA

SO

ND

5-Ye

ar A

vg.

2009

2010

Can

adia

n S

tora

ge

Inje

ctio

ns/W

ithd

raw

als

BC

F, M

onth

End

Nor

th A

mer

ican

Sto

rage

•Hig

her

than

norm

alna

tura

lga

sst

orag

ein

vent

orie

sin

Can

ada

and

the

US

are

supp

ortin

gex

pect

atio

nsof

low

gas

pric

es.

•Can

adia

nw

orki

ngga

sst

orag

evo

lum

esin

crea

sed

from

273.

2B

CF

inM

arch

to32

3.6

BC

Fin

Apr

il,39

perc

ent,

or90

BC

Fab

ove

the

five-

year

aver

age.

•Net

inje

ctio

nsin

tow

este

rnan

dea

ster

nC

anad

ian

stor

age

wer

e42

perc

ent

and

30pe

rcen

tgre

ater

than

the

five-

year

aver

ages

,res

pect

ivel

y.•A

sof

Apr

il30

,C

anad

ian

unde

rgro

und

stor

age

was

48pe

rcen

tfu

ll,co

mpa

red

36pe

rcen

tatt

heen

dof

Apr

il20

09,a

nd27

perc

enta

tthe

end

ofA

pril

2008

.•W

orki

ngga

sin

US

unde

rgro

und

stor

age

tota

led

1,99

5B

CF,

and

exce

eded

the

five-

year

aver

age

by22

perc

ent.

•With

the

exce

ptio

nof

Apr

il20

06,

stor

age

leve

lsha

veno

tty

pica

llyin

crea

sed

abov

e1,

900

BC

Fun

tilth

ese

cond

mon

thof

the

inje

ctio

nse

ason

.•D

urin

gth

em

onth

ofA

pril,

net

inje

ctio

nsin

toU

Sst

orag

eto

tale

d45

6B

CF,

111

perc

entg

reat

erth

anth

ein

ject

ions

mad

ela

stye

ar,a

nd12

3pe

rcen

tgre

ater

than

the

five-

year

aver

age.

•The

incr

ease

inst

orag

ein

vent

orie

sin

the

US

prod

ucin

gre

gion

acco

unte

dfo

r46

perc

ento

ftot

alin

ject

ions

into

US

unde

rgro

und

stor

age,

whi

lead

ditio

nsto

stor

age

inth

ew

este

rnan

dea

ster

nco

nsum

ing

regi

ons

wer

ere

spon

sibl

efo

r43

perc

enta

nd11

perc

ento

ftot

alU

Sna

tura

lgas

inje

ctio

ns,r

espe

ctiv

ely.


PAGE 14

SOU

RCE

: C

ERI,

Pla

tts

Gas

Dai

ly.

SOU

RCE

: C

ERI,

Pla

tts

Gas

Dai

ly.

SOU

RCE

: C

ERI,

Pla

tts

Gas

Dai

ly.

SOU

RCE

: C

ERI,

Pla

tts

Gas

Dai

ly.

-100-8

0

-60

-40

-20020406080100

JF

MA

MJ

JA

SO

ND

5-Ye

ar A

vg.

2009

2010

US

Wes

tern

Con

sum

ing

Reg

ion

Sto

rage

In

ject

ions

/Wit

hdra

wal

sB

CF,

Mon

th E

nd

-700

-500

-300

-10010

0

300

500

JF

MA

MJ

JA

SO

ND

5-Ye

ar A

vg.

2009

2010

US

Eas

tern

Sto

rage

B

CF,

Mon

th E

nd

-250

-200

-150

-100-5

0050100

150

200

JF

MA

MJ

JA

SO

ND

5-Ye

ar A

vg.

2009

2010

US

Pro

duci

ng R

egio

n S

tora

ge

BC

F, M

onth

End

-100

0

-800

-600

-400

-2000

200

400

600

800

JF

MA

MJ

JA

SO

ND

5-Ye

ar A

vg.

2009

2010

US

Sto

rage

In

ject

ions

/Wit

hdrw

als

BC

F, M

onth

End


PAGE 15

SOU

RCE

: U

.S.

DO

E.SO

URCE

: U

.S.

DO

E.

SOU

RCE

: U

.S.

DO

E.SO

URCE

: U

.S.

DO

E.

024681012141618202224

Mar

-09

May

-09

Jul-0

9Se

p-09

Nov

-09

Jan-

10M

ar-1

0

Cov

e Po

int

Elba

Isla

ndEv

eret

tN

E G

atew

ayN

eptu

ne

Eas

tern

US

LN

G I

mpo

rts

By

Faci

lity

BC

F

024681012141618202224

Mar

-09

May

-09

Jul-0

9Se

p-09

Nov

-09

Jan-

10M

ar-1

0

Gul

f Gat

eway

Free

port

Lake

Cha

rles

Sabi

ne P

ass

Cam

eron

US

GO

M L

NG

Im

port

s B

y Fa

cilit

yB

CF

0510152025303540

Mar

-09

May

-09

Jul-0

9Se

p-09

Nov

-09

Jan-

10M

ar-1

0

Egyp

tN

iger

iaTr

inid

adNo

rway

Qat

ar

BC

F

US

LN

G I

mpo

rts

By

Ori

gin

Impo

rts

from

Trin

idad

an

d Eg

ypt

acco

unte

d fo

r 74

perc

ent o

f tot

al

LNG

impo

rts

in M

arch

.

02468101214

JF

MA

MJ

JA

SO

ND

2008

2009

2010

Vol

ume-

Wei

ghte

d A

vera

ge L

NG

Pri

ceV

olum

e-W

eigh

ted

Ave

rage

LN

G P

rice

US$

/MM

Btu


PAGE 16

SOU

RCE

: E

IA,

U.S

. D

OE.

SOU

RCE

: U

.S.

DO

E.

01234567

Mar

-09

May

-09

Jul-0

9Se

p-09

Nov

-09

Jan-

10M

ar-1

0

US

LN

G E

xpor

ts t

o Ja

pan

BC

F

Sinc

e M

arch

200

9, C

onoc

oPhi

lips

and

Mar

atho

n O

il ha

ve jo

intly

exp

orte

d al

mos

t one

third

of t

he v

olum

e au

thor

ized

und

er th

e ex

istin

g 2

year

exp

ort l

icen

se.

An

appl

icat

ion

to e

xten

d th

e ex

port

lice

nse

to 2

013

will

be

filed

with

the

US

DO

E in

Jun

e 20

10.

01234567

Mar

-09

May

-09

Jul-0

9Se

p-09

Nov

-09

Jan-

10M

ar-1

0

Con

ocoP

hilli

psM

arat

hon

US

LN

G E

xpor

tsB

y E

xpo

rter

BC

F

LNG

Im

port

ers

in 2

010

Can

adia

n LN

G Im

port

ers

in 2

010

(As

of

Febr

uary

28,

201

0)

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pany

Volu

me

(BC

F)

% o

f Tot

al

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ports

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solE

nerg

y C

anad

a Lt

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.610

0To

tal

20.6

100

U.S

. LN

G Im

port

ers

in 2

010

(As

of M

arch

31,

20

10)

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pany

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me

(BC

F)

% o

f Tot

al

LNG

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port

sB

G L

NG

Ser

vice

s31

.422

.5D

istr

igas

41.1

29.5

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eler

ate

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10.5

Stat

oil

20.5

14.7

BP

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rgy

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pany

8.8

6.3

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l Gas

& P

ower

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11.2

Sem

pra

LNG

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ketin

g4.

23.

0S

hell

NA

LNG

3.0

2.2

Tota

l13

9.3

100.

0

LNG

Shi

pper

s in

201

0

LNG

Shi

pper

s to

the

U.S.

in 2

010

(As

of M

arch

31,

201

0)

Com

pany

Volu

me

(BCF

)%

of T

otal

LN

G

Ship

men

tsAt

lant

ic L

NG

2/3

Com

pany

5.3

3.8

Atla

ntic

LNG

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pany

11.7

8.4

ELNG

/BG

GM

20.4

14.6

Gas

Nat

ural

Apr

ovis

iona

mie

ntos

10.0

7.2

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ntic

LNG

8.8

6.3

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eria

LN

G L

imite

d2.

61.

8PF

LE2.

92.

1Tr

inlin

g5.

64.

0Sh

ell E

aste

rn L

NG

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z14

.110

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asG

as7.

05.

0Q

atar

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uefie

d G

as C

ompa

ny

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ited

(II)

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6.7

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fan

2.8

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oil A

SA, R

WE-

Dea

Nor

ge A

S,

Hes

s N

orge

AS

5.8

4.2

BG G

as M

arke

ting

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12.1

8.7

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oil A

SA11

.78.

4Ye

men

LN

G C

ompa

ny L

td.;

TOTA

L G

as &

Pow

er L

td.

6.3

4.6

Tota

l13

9.3

100.

0

SOU

RCE

: U

.S.

DO

E.SO

URCE

: U

.S.

DO

E.


PAGE 17

SOU

RCE

: C

ERI,

CAO

DC,

Bak

er H

ughe

s.SO

URCE

: C

ERI,

CAO

DC.

SOU

RCE

: C

ERI,

CAO

DC.

SOU

RCE

: C

ERI,

CAO

DC.

0

500

1,00

0

1,50

0

2,00

0

2,50

0

3,00

0 Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10

WCS

BUS

Nor

th A

mer

ica

n A

ctiv

e R

igs

Rig

s

0

100

200

300

400

500

600

700

800

900

1,00

0 Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10

Act

ive

Rig

sTo

tal R

ig D

rillin

g Fl

eet

Can

adia

n R

ig F

leet

Uti

lizat

ion

Wee

kly

Ave

rag

e A

ctiv

e R

igs

Rig

s

0

100

200

300

400

500

600

700 Ja

n-08

Mar

-08

Jun-

08Se

p-08

Dec

-08

Mar

-09

Jun-

09Se

p-09

Dec

-09

Mar

-10

BCAB

SK

WC

SB

Act

ive

Rig

s by

Pro

vinc

eW

eekl

y A

vera

ge

Rig

s

-

100

200

300

400

500

600

700

800

15

913

1721

2529

3337

4145

49

5-Ye

ar A

vg.

2009

2010

Wes

tern

Can

ada

Act

ive

Rig

sW

eekl

y A

vera

ge

Rig

s

Wee

k N

umbe

r


PAGE 18

SOU

RCE

: C

ERI,

Bak

er H

ughe

s.SO

URC

E:

CERI

, Ba

ker

Hug

hes.

SOU

RCE:

CE

RI,

Bake

r H

ughe

s.

0

500

1,00

0

1,50

0

2,00

0

2,50

0 Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10

Ons

hore

Gas

-Dir

ecte

dG

OM

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-Dir

ecte

dTo

tal O

il-D

irec

ted

Rig

s

US

Tot

al A

ctiv

e R

igs

0 20

40

60

80

100

120

140 Ja

n-02

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09Ja

n-10

Oil-

Dire

cted

Gas

-Dir

ecte

d

US

Gul

f of

Mex

ico

Act

ive

Rig

sR

igs

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

200

400

600

800

1,00

0

1,20

0

1,40

0

1,60

0

1,80

0

2,00

0

2,20

0 Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10

Oil-

Dir

ecte

dG

as-D

irec

ted

Gas

-Dir

ecte

d %

US

Tot

al A

ctiv

e R

igs

Rig

s

Rel

ativ

ely

high

oil

pric

es c

ontr

ibut

ed to

a

143

perc

ent y

ear-

over

-yea

r gr

owth

rate

in

oil-d

irect

ed ri

g ac

tivity

. The

ave

rage

nu

mbe

r of g

as-d

irect

ed ri

gs in

crea

sed

by

24 p

erce

nt o

ver

the

sam

e pe

riod.

Nor

th A

mer

ican

Rig

Act

ivit

y

•Dur

ing

the

first

four

mon

ths

of20

10,t

heav

erag

eW

CS

Brig

utili

zatio

nra

tew

as44

perc

ent,

upfro

m30

perc

entd

urin

gth

esa

me

perio

din

2009

.•C

ompa

red

toth

efir

stfo

urm

onth

sof

2009

,rig

activ

ityin

the

WC

SB

has

incr

ease

dby

anav

erag

eof

99rig

s,w

ithA

lber

taac

coun

ting

for

68pe

rcen

toft

heto

tali

ncre

ase.

•An

aver

age

of12

9rig

sw

ere

oper

atin

gin

the

WC

SB

durin

gth

em

onth

ofA

pril.

•Mon

thly

aver

age

WC

SB

utiliz

atio

nra

tes

expe

rienc

eda

decl

ine

from

44pe

rcen

tin

Mar

chto

16pe

rcen

tin

Apr

il,bu

tre

mai

ned

7pe

rcen

tab

ove

utiliz

atio

nra

tes

reco

rded

inth

epr

evio

usye

ar.

•Man

itoba

had

the

larg

est

perc

enta

gede

clin

ein

rigac

tivity

durin

gth

em

onth

ofA

pril,

with

the

aver

age

num

ber

ofop

erat

ing

rigs

fallin

gby

92pe

rcen

t.•In

Apr

il,th

eav

erag

enu

mbe

rof

rigs

oper

atin

gin

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erta

and

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katc

hew

ande

clin

edby

158

and

34,r

espe

ctiv

ely.

•InA

pril,

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erag

eof

1,47

9rig

sw

ere

oper

atin

gin

the

US

.•M

onth

-ove

r-m

onth

,gas

-dire

cted

rigac

tivity

inth

eU

Sin

crea

sed

by3

perc

ent,

oran

aver

age

of26

rigs,

to95

9rig

s.•T

hein

crea

sing

num

ber

ofon

-sho

rerig

sw

asre

spon

sibl

efo

r97

perc

ent

ofth

eto

talc

hang

ein

gas-

dire

cted

rigac

tivity

.


PAGE 19

2010 Industry Events Calendar

For further information on these conferences, visit our website at www.ceri.caTo register, contact Capri Gardener at [email protected] or 403-220-2380

CERI 2010 Petrochemical Conference“Growing Alberta’s Competitiveness”

As the first signs of an economic recovery start to materialize and the survivors start ramping up production, will themarket be the same as before or has the game changed? Alberta’s gas industry is still in the doldrums and NGL supplyis declining as a result of declining gas production, precipitated by soft market prices. On the horizon is the growingpotential for the Marcellus shale gas play in the US to become a significant NGL supplier to the Sarnia area, which hasbeen one of Alberta’s long-time markets. Feedstock issues, the unknown elements of climate change policy, and thelong-term issue of Industry competitiveness are all issues that are extremely important to both Government andIndustry.

Delta Lodge at Kananaskis, AlbertaJune 6-8, 2010

april 2010 ceri commodity report - natural gas · ceri commodity report - natural gas page 4...

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