Henry Hub Gas Price Forecast

Updated April 2019

The chart provides Solomon’s Henry Hub natural gas price forecast through 2030. Highlights of key assumptions for the Henry Hub gas price forecast through 2030 are as follows:

  • Large increases in Gulf LNG exports over 2019–2021 could test production deliverability and price volatility as worldwide LNG fundamentals influence Henry Hub pricing.
  • Reasonable gas price levels continue to allow natural gas to take market share from coal-fired power generation as well as complement growing renewable capacity intermittency characteristics.
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AECO Gas Price Outlook

Updated April 2019

This chart provides Solomon’s October 2017 AECO natural gas nominal price forecast.

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Gas Price Volatility vs New Well Productivity

Updated April 2019

  • The figure illustrates that gas price volatility has declined, primarily due to an increase in new gas well productivity.
  • Price volatility will continue in local markets from time to time, with the ebb and flow in local production and demand conditions.
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North American LNG Exports and Volatility

Updated April 2019

The chart shows Henry Hub volatility versus North American LNG exports. Since their introduction in February 2016, LNG exports from the Gulf Coast have had only a muted impact on Henry Hub volatility.

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NYMEX Futures Gas Prices

Updated April 2019

  • NYMEX Forward Strip does not provide much insight when doing forecasts and is not a good predictor of future gas prices; due to:
    • Lack of significant liquidity after a very short period.
    • Considerable divergence from actuals as they materialize.
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Gas Basis Differential Overview

Updated April 2019

  • Basis Differentials reflect the market value of transportation.
  • Sustained low level of basis compared with the cost of transportation suggests excess pipeline capacity (Gulf Coast/Chicago and WCSB/Chicago Post-Alliance).
  • Sustained high level of basis compared with the cost of transportation suggests more pipeline capacity is required (Rockies/Markets and WCSB/Chicago Pre-Alliance).
  • Basis can change suddenly due to weather, pipeline operational difficulties (compressor failure), and perception.
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Henry Hub Gas Basis Differentials, Oct 2018

Updated April 2019

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Overall Gas Basis Differentials, Oct 2018

Updated April 2019

The figure shows Solomon’s forecast of the annual gas price basis differentials in nominal United States dollars per million British thermal units (USD/MM Btu) for the pricing points examined.

As market natural gas price basis differentials narrow, the value of long-haul transportation routes will decline.

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AECO Basis Differentials, Oct 2018

Updated April 2019

AECO

  • Western Canadian gas being pushed out of traditional markets (Central Canada, US Midwest and US NE) by lower cost Marcellus and Utica.
  • Production growth relies on increased demand for oil sands and power generation (both could be impacted by NDP emissions policy) and west coast LNG exports.
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Dawn-AECO Gas Basis Differentials, Oct 2018

Updated April 2019

  • Increased availability of US NE shale gas reduces requirements for western Canada supply that utilizes high-cost marginal pipe.
  • Dawn maintains premium to Appalachia supply to continue to attract supply.
  • As Appalachia connectivity to New England is enhanced, Dawn prices firm to compete.
  • Well supplied Midwest and US NE markets limit Dawn price upside.
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Relationship of Natural Gas & Oil Prices

Updated April 2019

  • Current oil prices have “geopolitical” content. Middle East unrest (e.g., North Korea and Iran nuclear tensions, Venezuela policies, and Nigerian supply disruptions).
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Comparison between Natural Gas and Oil Prices

Updated April 2019

  • Actual data through March 2016, forwards thereafter at close on April 12, 2016.
  • This chart underlines the significant discount in value of gas versus oil.
  • We share this chart regularly with executives (it is a bit complex the 1st time) and covers a decade of Oil/Gas Price Relationships and the forward year.
    • Green Line = Oil price (WTI)
    • Red Line = Gas price (Henry Hub)
    • x-axis shows the financial reporting periods
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Closing North American LNG Arbitrage

Updated April 2019

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Dawn – NIT/AECO Spread

Updated April 2019

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Gas Price Pendulum® – Natural Gas Price Influences

Updated April 2019

The figure indicates that Solomon’s long-term natural gas pricing outlook to 2030 will vary. This figure shows the supply and demand drivers along with their directional influence on the forecast gas price. The size of the text used for each driver reflects its relative influence on the gas price; drivers noted with larger text have more impact on forecast gas prices.

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Natural Gas Full-Cycle Resource Cost (Cost Curve)

Updated December 2017

This chart illustrates Solomon’s view of North American natural gas remaining resource in trillions of cubic feet (Tcf), sorted by break-even gas price. Solomon believes this changing supply cost, represented by the break-even gas price, is a key influence on long-term natural gas prices in North America and that lower-cost gas supply will be developed first.

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Western Canada Full-Cycle New Gas Cost, Excludes NGL

Updated December 2017

  • Solid colors on chart show Full-Cycle Supply Cost for New Gas:
    • Field Operating Cost (lifting costs)
    • Royalties – very low, <10%
    • Overhead (grey) – low
    • Finding & Development (Capital Cost), the biggest component:
      • Dark blue = Drilling & Completions
      • Light blue = other (land, seismic, facilities)
    • Cost of Capital amount needed for producer to earn a 15% return on capital (F&D) BT
  • Note the value gap (grey hatch area) when the Alberta gas price (black line) has been lower than the cost for new gas, and producers earn no return.
  • Old gas developed 5+ years ago, can still have positive cash flow at low gas prices.
  • roducers cannot survive at these low prices. The cash costs, such as OpEx, Royalty, and G&A, are 1.50–2.00 CAD/Mcf, and most producers barely have cash flow.

Note: 2012 may be misleading due to low drilling activity (when maintenance capital, which adds no reserves, becomes a large portion of total capital).

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