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  • PLATTS BENTEK METHODOLOGY

    Bob Yu Senior Analyst, Quantitative Modeling June 13, 2016

    BENPOSIUM 2016 1

  • RESTRICTIONS ON USE: YOU MAY USE THE PRICES, INDEXES, ASSESSMENTS AND OTHER RELATED INFORMATION (COLLECTIVELY, “DATA”) IN THIS PRESENTATION ONLY FOR YOUR PERSONAL USE. YOU MAY NOT PUBLISH, REPRODUCE, DISTRIBUTE, RETRANSMIT, RESELL, CREATE ANY DERIVATIVE WORK FROM AND/OR OTHERWISE PROVIDE ACCESS TO DATA OR ANY PORTION THEREOF TO ANY PERSON (EITHER WITHIN OR OUTSIDE YOUR COMPANY INCLUDING, BUT NOT LIMITED TO, VIA OR AS PART OF ANY INTERNAL ELECTRONIC SYSTEM OR INTERNET SITE), FIRM OR ENTITY. DISCLAIMER: PLATTS, ITS AFFILIATES AND ALL OF THEIR THIRD-PARTY LICENSORS DISCLAIM ANY AND ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AS TO THE DATA, OR THE RESULTS OBTAINED BY ITS USE OR AS TO THE PERFORMANCE THEREOF. LIMITATION OF LIABILITY: IN NO EVENT WHATSOEVER SHALL PLATTS, ITS AFFILIATES OR THEIR THIRD-PARTY LICENSORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS, TRADING LOSSES, OR LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE. THE DATA IS PROVIDED ON AN “AS IS” BASIS AND YOUR USE OF THE DATA IS AT YOUR OWN RISK. COPYRIGHT © 2016 BY PLATTS, MCGRAW HILL FINANCIAL, INC. ALL RIGHTS RESERVED. NO PORTION OF THIS PUBLICATION MAY BE PHOTOCOPIED, REPRODUCED, RETRANSMITTED, PUT INTO A COMPUTER SYSTEM OR OTHERWISE REDISTRIBUTED WITHOUT PRIOR AUTHORIZATION FROM PLATTS. PLATTS IS A TRADEMARK OF MCGRAW HILL FINANCIAL.

    BENPOSIUM 2016 2

  • Balance

    The Platts Bentek Approach

    3

    Data

    Modeling

    Forecast

    Hi st

    or y

    Research

    Optimization

    Meter

    Prod

    Power Utilization

    Corridor Flows Storage

    RCI Policy/ Economics

    Dmd

    Flow / Capacity

    Pipeline Exp

    Type Curves

    Processing GIS LNG Trade Flows Power Plant

    Industrial

    Infrastr ucture

    Rig Data

    NGL Supply EIA

    Well Data CEMS

    Note: Graphic above Is not inclusive of all data, research and model performed by Platts Bentek.

    FACTS

    INSIGHT

    WISDOM

    BENPOSIUM 2016 3

  • The Platts Bentek Approach

    40 50 60 70 80 90

    B cf

    US Supply

    Production Sample LNG Sendout Sample

    Imports Sample Supply Benchmark

    Modeled Supply Forecast Supply

    -

    50

    100

    150

    B cf

    US Demand

    RCI Sample Power Sample

    Exports Sample Demand Benchmark

    Modeled Demand Forecast Demand

    - 500

    1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

    B cf

    US Storage Inventory

    Historical US Inventory Forecast US Inventory BENPOSIUM 2016 4

    Source: Platts Bentek CellModel/CellCAST

  • MODELING HISTORICAL TRENDS

    BENPOSIUM 2016 5

  • • Modeling approach is Bottom-Up. Fundamentals are estimated at the regional level and then grossed up to a US number.

    • Many different statistical methods are used in the estimations, however, the flow sample is the primary driver. Transparency is key.

    • Models have a hierarchy. There are multiple checks at each level to ensure accuracy. • Balancing item helps us track EIA. • Are the benchmarks always right?

    Modeling Historic Trends

    Regional US Inputs

    (600) (400) (200) - 200

    18,000 20,000 22,000 24,000

    M M

    cf /d

    (C ha

    ng e)

    M M

    cf /d

    Texas Natural Gas Marketed Production (EIA)

    Revision MarketedProduction_Jan2016 MarketProduction_May2016

    BENPOSIUM 2016 6 Source: EIA

  • -

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    3,500

    4,000

    M M

    cf

    NE Flows on REX

    CHANDLERSVILLE CS TO CLARINGTON-E2W East Ohio - REX - Clarington Eureka Hunter / REX Cameron Ohio River System/REX Bearwallow Mon RICE/REX GUNSLINGER Seneca Plt

    20,500

    21,000

    21,500

    22,000

    22,500

    23,000

    23,500

    M M

    cf

    Northeast Dry Gas Production

    Transparency

    Production dropped 544 MMcf from 2/29 – 3/1

    BENPOSIUM 2016 7

    Source: Platts Bentek Supply/Demand, Basic Supply Market Model, Maintenance Calendar

  • Historical Accuracy

    -

    5

    10

    15

    20

    25

    30

    35

    40

    B cf

    /d

    US Power Burn Demand – EIA vs. Platts Bentek

    Sample EIA Platts Bentek Estimate

    Source: Platts Bentek Power Burn Daily report

    Since 2015… Average Error: 58 MMcf/d Average Sample Size: 72%

    BENPOSIUM 2016 8

  • Getting the Story Right Matters

    $-

    $1.00

    $2.00

    $3.00

    $4.00

    $5.00

    $6.00

    $7.00

    (1,500)

    (1,000)

    (500)

    -

    500

    1,000

    1,500

    $/ M

    M B

    tu

    B cf

    Henry Hub Vs. Rolling 5-Year Storage Surplus/Deficit

    Historic Surplus/Deficit Henry Hub Cash

    Warm winter leads to inventory surplus, crushing prices

    Polar Vortex causes record demand, driving prices higher

    Production continues to ramp, demand falls as US experiences warm winter

    BENPOSIUM 2016 9

    Source: EIA, NYMEX

  • FORECASTING FUTURE TRENDS

    BENPOSIUM 2016 10

  • Prediction

    DEMAND • The three main drivers of demand:

    weather, market growth, market share. • A regression of historic demand to 10-

    year normal temperatures give a starting point for the forecasts (seasonality).

    • Market growth is defined as an increase in demand due to structural shifts (new facilities being built, new ways to consume gas, etc.).

    • Market share is defined as demand that is sensitive to pricing (economic fuel switching).

    • Demand forecasts are a combination of

    multiple linear regression models to capture these three drivers.

    PRODUCTION • Production projections are starting point.

    • Type curves are developed for each class of well and by orientation for each basin.

    • Each basin is fitted with a type curve in order to predict future production trends in the area from new and existing wells.

    • Projections are then updated to account

    for infrastructure constraints, IRRs, well inventory, etc.

    BENPOSIUM 2016 11

  • Production Projection Example

    -

    1

    2

    3

    4

    5

    6

    7

    8

    B cf

    /d

    Eagle Ford Gas Production Projection

    Directional Vertical Horizontal History Future

    History Projection

    BENPOSIUM 2016 12

    Source: Platts Bentek Production Monitors

  • Demand Projection Example

    -

    2

    4

    6

    8

    10

    12

    B cf

    /d

    Northeast Power Burn Demand

    History Seasonality Market Growth Market Share

    - 20 40 60 80

    100

    D eg

    re es

    F ah

    re nh

    ei t

    NE Population-Weighted Temperatures

    (20,000) (10,000)

    - 10,000 20,000 30,000 40,000

    M W

    NE New Gas Build and Power Plant

    Retirements

    NewBuilds Retirements

    $- $20.00 $40.00 $60.00

    $/ M

    W h

    Cost of Generation Differences – Coal Vs. Gas

    $/MWh - Coal (CAPP)

    $/MWh - Gas (Dom South)

    BENPOSIUM 2016 13

    Source: Platts Bentek CellModel/CellCAST

  • Balancing the Forecasts

    (2,500)

    (2,000)

    (1,500)

    (1,000)

    (500)

    -

    500

    1,000

    -

    20

    40

    60

    80

    100

    120

    M M

    cf /d

    (A nn

    ua l S

    up pl

    y –

    D em

    an d)

    B cf

    /d (S

    up pl

    y, D

    em an

    d)

    US Supply and Demand Balance

    Annual Supply - Demand Historical Supply Historical Demand Supply Forecast Demand Forecast

    BENPOSIUM 2016 14

    Source: Platts Bentek CellModel/CellCAST

  • Getting the Story Right Matters

    BENPOSIUM 2016 15

    $-

    $1.00

    $2.00

    $3.00

    $4.00

    $5.00

    $6.00

    $7.00

    (1,500)

    (1,000)

    (500)

    -

    500

    1,000

    1,500

    $/ M

    M B

    tu

    B cf

    Henry Hub Vs. Rolling 5-Year Storage Surplus/Deficit

    Historic Surplus/Deficit Forecast Surplus/Deficit Henry Hub Cash

    Demand growth outpaces supply, causing declining inventories in the short

    term

    ???

    Source: Platts Bentek CellModel/CellCAST, EIA, NYMEX

  • Back-Testing the Fundamental Forecasts

    BENPOSIUM 2016 16

    $

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