Module 3 - Natural Gas Markets

Presenters: Scott Potter, Rusty Braziel, Sheetal Nasta, Rick Smead & Jason Ferguson

The gas is back. After U.S. volumes fell with commodity prices in 2015 producers have responded and production is on record-setting pace. The issue that we must grapple with now is the disparity between where the gas is produced and the market it must ultimately find its way to.   Module #3 looks at recent developments and provides a solid foundation in natural gas market dynamics, including the pipeline transportation network, trading hubs, basis, and netback calculations.

3.1 Natural Gas Market Overview. This section reviews regional production trends with a focus on the unique factors influencing each production area. To make sense of those trends going forward, we lay out RBN’s 5-year price scenarios – cutback, growth and advance. From these, we develop the framework for corresponding advance, growth, and cutback gas production forecasts. Finally, we attempt to demystify the natural gas market to outsiders by reviewing the fundamental market dynamics – what are the drivers, how they relate, and why they behave as they do.

3.2 Model 3.1 - Flow Data Analysis. When it comes to natural gas production, especially in the Northeast, how do we keep up with supply in the region and how it balances against demand, pipeline projects and the gas market in general? This module helps answer those questions. Sheetal Nasta introduces Model 3.1 to help understand the balance between natural gas supply and demand. The model takes a detailed approach in analyzing Genscape flow data to help understand Northeast market dynamics.

3.3 Natural Gas Transportation, Rates, and Regulation and Model 3.2 –Estimating Rates for Natural Gas Pipelines. The structure of natural gas transportation rates is unique to that commodity and is based on regulations issued over the past 25 years. This section describes those regulations and rate-setting mechanisms.  A new pipeline is getting built out of the Permian that will finally relieve that constraint and allow you to get your gas from point A to point B. You’ve got your sights set on shipping gas on that new pipeline but first you need to know; what will the rate be once construction is complete? In model 3.2, Rick Smead walks through how to do this calculation.

3.4 Northeast Supply Surge. The Big U-Turn and New Projects and The Demand Markets – Sectors, Expectations, Issues and LNG. The Big U-Turn and New Projects - Over the past several years, most of the growth in North America natural gas production has come from the Marcellus and Utica plays in Appalachia.  Oversupply has crushed local prices and the scores of pipeline projects planned to move the surplus gas to markets across the U.S. and Canada are beginning to come online.  How has this record gas production been consumed and what will balance the market going forward?  Here we delve into the answer. Power burn has been tremendous, but the industry is still trying to understand two huge wildcards – liquefied natural gas (LNG) and exports to Mexico.

3.5 Model 3.3 - Coal Vs. Natural Gas. Increasingly, coal and gas are competing for market share in the power generation market.  Model 3.3 shows how those economics come together. We’ll walk you through how power plants in the United States respond to gas and coal price changes. The module reviews some of the key conversions that define the relationships between coal and gas plant efficiencies, fuel usage, heat rate and output. In this module, we also review how to estimate the amount of gas burned in the US as a function of the gas price.