Focus on Northwest US February 19 & 20, 2013 Cautionary Language - - PowerPoint PPT Presentation

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Focus on Northwest US February 19 & 20, 2013 Cautionary Language - - PowerPoint PPT Presentation

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Gas Supply Focus on Northwest US February 19 & 20, 2013 Cautionary Language Regarding Forward-Looking Statements This presentation contains forward-looking statements. These forward-looking statements are identified as any statement that

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February 19 & 20, 2013

Gas Supply Focus on Northwest US

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Cautionary Language Regarding Forward-Looking Statements

This presentation contains forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. In particular, statements, express or implied, concerning future actions, conditions or events, future operating results or the ability to generate revenues, income or cash flow or to make distributions or pay dividends are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations of Kinder Morgan Energy Partners, L.P., Kinder Morgan Management, LLC, El Paso Pipeline Partners, L.P., and Kinder Morgan, Inc. may differ materially from those expressed in these forward-looking

  • statements. Many of the factors that will determine these results are beyond Kinder Morgan's

ability to control or predict. These statements are necessarily based upon various assumptions involving judgments with respect to the future, including, among others, the ability to achieve synergies and revenue growth; national, international, regional and local economic, competitive and regulatory conditions and developments; technological developments; capital and credit markets conditions; inflation rates; interest rates; the political and economic stability of oil producing nations; energy markets; weather conditions; environmental conditions; business and regulatory or legal decisions; the pace of deregulation of retail natural gas and electricity and certain agricultural products; the timing and success of business development efforts; terrorism; and other uncertainties. There is no assurance that any of the actions, events or results of the forward-looking statements will occur, or if any of them do, what impact they will have on our results of operations or financial condition. Because of these uncertainties, you are cautioned not to put undue reliance on any forward-looking statement.

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Agenda

  • KM Overview
  • Shale Revolution
  • Rockies Supply
  • Canadian Supply
  • Macro Modeling
  • US Supply Dynamics
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Kinder Morgan Assets

4

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West Region Assets

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Malin Opal Hub

U T A H N E V A D A O R E G O N C O L O R A D O I D A H O C A L I F . W Y O M I N G

CIG

Kern River Paiute Tuscarora

PG&E

GTN

RUBY

WIC Cheyenne

Plains

Cheyenne

Uinta Basin Piceance Basin Denver / Julesburg Powder River Basin Big Horn Basin Wind River Basin Green River Basin Raton Basin

Ruby Basin Access

Gold Pan Delivery

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Shale Revolution

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North American Shale Plays

Major US Gas Shale Plays

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Gas Flows Within the US

Major US Gas Shale Play

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Shale Gas Boom US Dry Natural Gas Production

Source: EIA Annual Energy Outlook 2013 Early Release

Tcf/yr

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  • 10.0

20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

L48 Production in Bcf/d Conventional Tight Gas CBM Shale Gas

Source: Wood Mackenzie

Previous Record 59.3 Bcf/d (1973)

Shale Gas Boom Shale Gas Boom

Source: Wood Mackenzie

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HAYNESVILLE MARCELLUS EAGLE FORD

0.1 1.2 3.7 6.6 6.3 5.7 6.1 6.6 7.2

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Haynesville

0.1 0.5 1.6 3.4 5.5 6.4 7.8 8.9 9.9

0.0 2.0 4.0 6.0 8.0 10.0 12.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Marcellus

0.2 1.0 1.9 2.6 2.9 3.4 3.9

0.0 1.0 2.0 3.0 4.0 5.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Eagle Ford Production volumes in Bcf/d

Source: Wood Mackenzie

Growth of Major Shale Plays

Others: Utica, Woodford, Fayetteville, Barnett

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Henry Hub Price Forecast

  • Prices are expected to rise in 2013 on

supply/demand rebalancing followed by stable increases thereafter

  • Future prices before shale revolution were
  • ver $8/Dth – New resource has lowered gas

prices by $3 to $4 per Dth long-term

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Rockies Supply

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  • Base case incremental wellhead supply growth from 2012

to 2022 = 2.0 Bcf/d

– Current Production = 11 Bcf/d

  • Growth basins are Piceance, Uinta, Denver, and Green

River (account for 2.5 Bcf/d growth )

  • Anticipate 30+ years of Rockies production growth
  • Liquids Rich Gas Upside – Niobrara
  • Resource/Production ratio = 100+ Years

Rockies Supply Summary

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0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0

Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Production (Bcf/d)

Overthrust Big Horn Wind River Powder River Denver Green River Piceance Uinta

Rocky Mountain Supply

Improving Prices & Technologies Flat $2 Gas Gas Bubble

Low Gas Prices

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Rockies Wellhead Vintage Production

50 100 150 200 250 1 2 3 4 5 6 7 8 9 10 11 12 13

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Gas Rigs

Bcf/d

2.5 Bcf/d/Yr 22.7% Decline

Associated Gas 7% in 2009 10% in 2012

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0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 50 100 150 200 250

Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12

% Horizontal Rigs Number of Rigs

Gas Oil Horizontal Rigs % Horizontal Rigs

Active Rigs in the Rockies

Source: Rig Information from Baker Hughes

  • Shift in drilling oil/liquids plays with

horizontal wells – Denver, Uinta & Powder River basins

  • Over 50% of rigs drilling horizontal wells
  • Flat gas production since 2009
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Active Rigs in the Rockies

Opal/Cheyenne Hubs Area

  • 55 Active Gas Rigs
  • 74 Active Oil Rigs
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Niobrara in the Rockies

Areas of encouraging Niobrara drilling results

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Rockies Rig Productivity

  • 10

20 30 40 50 60

5 10 15 20 25 30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Wells Drilled per rig per year

MMcf/d/yr/rig

Rig Productivity Wells Drilled per Rig

  • Gas well drilling efficiency increases

– 2011 average rig drilled twice the number of wells per year compared to 2006 – Last 3 years average wells productivity increased 40% – Rig productivity up by almost 150% from 2006

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Rockies Type Curve – w/o CBM

1000 2000 3000 4000 5000 6000 200 400 600 800 1000 1200

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Wells Drilled Mcf/d per Well

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PGC Resource and Gas Prices

Data source: Potential Gas Committee, Gas Daily, and Kiodex, CERA

Total Potential Gas Resources (Mean Values)

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00

Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17

Gas Prices ($/Dth)

Henry Hub Kiodex Future Prices

Henry Hub Gas Prices

PGC Area Traditional Gas Resources (Mean, Tcf) Coalbed Gas Resources (M.L., Tcf) Total Pot. Resources (Tcf, rounded) Traditional Proportion

  • f Total US

Gulf Coast Atlantic Rocky Mountain Mid-Continent Pacific North Central Total Lower 48* Alaska Total U.S. (means)* 506.0 353.6 344.0 272.2 54.0 21.6 1,551.2 193.8 1,739.2 3.4 17.3 51.9 7.5 2.6 11.6 94.3 57.0 158.6 509.3 370.9 395.9 279.8 56.6 33.3 1,739.2 250.8 1,897.8

29.0% 20.3% 19.7% 15.6% 3.1% 1.2% 11.1%

500 1,000 1,500 2,000 2,500 3,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Tcf

IHS CERA Shale Resource Estimate (additional to PGC) PGC Shale Resource Estimate Non-Shale Resources Total Potential Resources Proved Reserves

Source: EIA, PGC, IHS CERA. Note: Tcf = trillion cubic feet.

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EIA Proved Reserves

  • Rockies has a high Proved

Resource in relation to other state across the US

  • Proved resource continues to grow
  • Reserve additions driven by shales
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Rockies Long-Term Hedging Deals

  • Nucor JV with Encana – Piceance Basin

– A recent agreement with Nucor which is designed to support Nucor's increased use of natural gas for its facilities, such as its direct reduced iron facility currently under construction in Convent, Louisiana – Nucor expects to invest $542 million over 3 years and $3.64 billion over the agreement’s estimated 13-22 years – The agreement will enable Encana to drill up to 4,000 new wells over 20 years – Mesaverde development only – Dry gas, long-term hedging – volumes up to 100 MMcf/d

  • NW Natural JV with Encana – Jonah Field

– Gross investment of approximately $250 million – Agreement provides gas for 30 years with majority flowing in first 10 years – Working interest will provide 8-10 percent of NWN’s supply over first 10 years

  • Marketing firms working on other deals
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Rockies Production “Hot Spots”

Liquids Rich/Oil

  • Denver Basin Horizontal Niobrara Drilling
  • Powder River Basin Niobrara/Other Drilling
  • Uinta Basin Oil Activity
  • Sand Wash Niobrara Activity
  • San Juan Niobrara Activity

Dry Gas

  • Piceance Basin Niobrara Drilling

– Encana & WPX – 4 to 8 Bcf/well – comparable to Haynesville

Liquids economic uplift at Green River, Denver, Uinta, and Piceance basins allow for favorable economics with a slight gas/ethane price uplift.

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2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Piceance Uinta Green River Denver Powder River Overthrust Wind River Big Horn Low High

Rocky Mountain Production

(Volumes are Wellhead – Measured in MMcfd)

1990-2011: Wellhead total data from DI Desktop 2012-2022: Kinder Morgan forecast

Forecast by 2022: High Case 14,771 Mid Case 13,005 Low Case 11,408

Forecast

2.0 Bcf/d of growth 2012-2022

  • Flat production over last three years with

anticipated growth beginning in 2015

– 2.0 Bcf/d growth by 2022

  • All growth to come from Green River,

Uinta, Piceance, and Denver basins

– Oil/liquids rich plays drive production growth – Powder River associated offset by CBM decline

  • 2.5 Bcf/d of new gas development to keep

production flat

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2 4 6 8 10 12 14 16 18 20 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Rockies Long-Term Production Trends

By Resource Type

Bcf/d

Produced Proved Probable

2042 2036 2027 2042 Peak 17.8 Bcf/d Production Kinder Morgan High Case Kinder Morgan Base Case

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Kern River Ruby Northwest - PNW Northwest -SJ Basin Trans Colorado REX Bison Trailblazer CIG Cheyenne Plains Southern Star KMIGT WBI

  • 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

REX West ISD REX East ISD Bison ISD Ruby ISD

Operational Capacity 85% Load Factor East 46% West 54% Rockies Exports YTD 2012 Averages through November

Rockies Exports

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Ruby’s Daily Battle with GTN and REX

200 400 600 800 1000 1200 1400 1600 1800 2000 Ruby GTN REX

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Fluctuating Rockies Exports Picture

1,800 2,000 2,200 2,400 2,600 2,800 3,000 3,200 3,400 3,600 3,800 4,000 4,200 4,400 4,600 4,800 1/1/2011 1/21/2011 2/10/2011 3/2/2011 3/22/2011 4/11/2011 5/1/2011 5/21/2011 6/10/2011 6/30/2011 7/20/2011 8/9/2011 8/29/2011 9/18/2011 10/8/2011 10/28/2011 11/17/2011 12/7/2011 12/27/2011 1/16/2012 2/5/2012 2/25/2012 3/16/2012 4/5/2012 4/25/2012 5/15/2012 6/4/2012 6/24/2012 7/14/2012 8/3/2012 8/23/2012 9/12/2012 10/2/2012 10/22/2012 11/11/2012 12/1/2012 12/21/2012 Rox Exports West Rox Exports East

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Canada

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Canadian Rigs

100 200 300 400 500 600 700 800 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Rigs Total Canadian Rigs Canadian Gas BC Rigs

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Changing Canadian Supply

NEB Energy Market Assessment 2011

Source: NEB

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Changing Canadian Supply

NEB Energy Market Assessment 2011

Source: NEB 2 4 6 8 10 12 14 16 18 20

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Bcf/d

NEB - Base Case Gas Production

Production w/o Frontier Mackenzie Gas Newfoundland 2012 Short Term Base 2012 Short Term Low 2012 Short Term High

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Canada – NEB Base Case Gas Demand

2 4 6 8 10 12 14 16

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Bcf/d

Total Mining Utility Electric Generation Residential Commercial Total Manufacturing Other Source: NEB

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Canada – NEB Gas Available for Exports

  • 4
  • 2

2 4 6 8 10 12

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Bcf/d

Base - NEB Energy Market Assessment 2011 Low - NEB Energy Market Assessment 2011 Kitimat In Service Kitimat In Service NEB Energy Market Assessment 2011 “In the Low Case, lower production levels drive the decrease in net gas available for export, as production drops six percent from 2011 to 2035. Without Mackenzie gas to boost production levels, the supply and demand projections in the Low Case imply Canada becomes a net importer of gas by 2028.” Source: NEB

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NEB Price Assumptions vs Current Prices

$0 $2 $4 $6 $8 $10 $12

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Henry Hub Gas Prices (2010 $/Dth)

Base - NEB Energy Market Assessment 2011 Low - NEB Energy Market Assessment 2011 NYMEX - Henry Hub Price EIA - 2013 Energy Outlook Source: NEB, EIA

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  • There are three LNG export

projects in development at Kitimat, British Columbia

– Kitimat LNG, BC LNG, and Shell have provincial and federal approval to build – BG and Petronas are investigating separate projects in British Columbia

  • Each could be 1 Bcf/d or

more

  • Economics are compelling

and plants are likely to be constructed

  • 4.8 Bcf/d NEB Export

Approved Projects

– Reduces gas available, raises AECO basis, and improves Rockies competitiveness

British Columbia LNG Exports…

Kitimat LNG 1.4 Bcf/d BC LNG 0.2 Bcf/d Shell 1.0 to 3.2 Bcf/d

Source: Kinder Morgan, ICF

Sumas Kingsgate

Asian Market Exports Montney Horn River

$30 billion of proposed Asian upstream investments in WCSB

NEB - “the Board is satisfied that the gas resource base in Canada, as well as North America, is large and can easily accommodate reasonably foreseeable Canadian demand as well as the proposed LNG exports.”

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Potential Resource (Tcf)

  • WCSB Remaining Resource

NEB NEB (2011) CSUG TransCanada – Montney (BC) 31 108 77-166 60-100 – Horn River (BC) 78 90 75-170 80-130 – Other 88 234 325-638 155-280 197 432 477-974 295-510 RP (14 Bcf/d) 39 85 93-191 58-100

  • US Lower 48 = 2,170 Tcf

RP – Rockies 475 22% 118 – Shale 687 32% – Other 1,008 46%

Source: US: Potential Gas Committee, EIA Canada: NEB Yearend 2010 Resource Estimate, NEB Energy Market Assessment 2011, Canadian Society for Unconventional Gas (May 2010), TransCanada

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Macro Modeling

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Unconventional Gas Drives Supply Growth

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Gas Demand Growth Varies Across Regions

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Flows Change as Supply/Demand Shifts

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US Supply Dynamics

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US Active Rigs

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400

Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Number of Rigs

Gas Oil Horizontal

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Refined Technology

1 2 3 4 5 6 7 8 24 48 72 96 120 144 168 192 216 Bcf per Day Months from First Production

Barnett Marcellus Eagle Ford Fayetteville Jonah Haynesville Pinedale Granite Wash Montney

Source: IHS CERA.

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US Well Performance

Gas Wells (excluding CBM Wells)

5000 10000 15000 20000 25000 30000 35000 500 1000 1500 2000 2500 3000 3500 4000

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Wells Drilled Mcf/d per Well 10 20 30 40 50 60

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US Well Performance

Oil Wells (excluding CBM Wells)

2000 4000 6000 8000 10000 12000 14000 50 100 150 200 250 300 350

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Wells Drilled Mcf/d per Well 2 4 6 8 10

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US Well Performance – Horizontal Gas Wells

(excluding CBM Wells)

1000 2000 3000 4000 5000 6000 500 1000 1500 2000 2500 3000 3500 4000

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Wells Drilled Mcf/d per Well 5 10 15 20 25

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US Well Performance – Horizontal Oil Wells

(excluding CBM Wells)

500 1000 1500 2000 2500 100 200 300 400 500 600 700 800

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Wells Drilled Mcf/d per Well 1 2 3

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US Gas Rig Productivity – Volume per Rig

  • 200

400 600 800 1,000 1,200 1,400 1,600

5,000 10,000 15,000 20,000 25,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Active Gas Rigs MMcf/d/yr/rig

Rig Productivity Active Gas Rigs

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US Wellhead Vintage Production

200 400 600 800 1,000 1,200 1,400 1,600 1,800 10 20 30 40 50 60 70 80

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Oil/Gas Rigs

Bcf/d

16 Bcf/d/Yr 25.8 % Decline

EIA 914 Production Estimate

Oil Rigs Gas Rigs

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New Gas Development - 2013

Henry Hub Prices – 10% IRR – Excludes Sunk Costs (Land, Seismic, etc.)

150 300 450 600 750 900 1,050 1,200 1,350 1,500

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Working Rigs Breakeven Economics ($/Dth)

New Gas - Bcf/d

New Gas Development vs. Breakeven Economics - 2013

Oil Wells Gross Cost Marcellus Granite Wash Eagle Ford Fayetteville Barnett Pinedale Uinta Woodford Haynesville Piceance Denver Conventional Other Shale/Tight Sand Other Rockies Conventional Other Rigs

Decline = 72 Bcf.d * .258 = 18.58 LNG/Mexico/Canada = 0.0 Production Growth = 0.0 Total: 18.58

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Conclusions

  • Both Rockies and WCSB have ample long-term resources
  • f 400+ Tcf

– R/P of 85+ years

  • Major shale plays (production growth) supplying central

and eastern US markets

– Rockies gas gets “pushed” west – Canadian gas gets “pushed” west (oil sands & Asian markets)

  • Northwest markets will continue to have choices between

Rockies and Canadian supply

– Canadian gas production needed to meet domestic demand and LNG exports (large supply source will be controlled by Asian investors) – Possibly no net US exports – Rockies will continue to export large quantities of gas (8+ Bcf/d) and will have export flexibility to meet market demand