NATURAL GAS – NEW SUPPLIES AND GROWING GLOBAL PRICE INFLUENCE

Beginning around 2010 , the North American natural gas markets experienced a massive restructuring of supply which has reshaped and redirected a significant portion of the country ’ s delivery infrastructure , created an almost persistent oversupplied condition , and has changed many of the sources , types and channels of data on which traders rely .

With the advent of long-reach horizontal drilling techniques and massive hydraulic fracturing , a wealth of supply has been brought on-line from fields that were otherwise uneconomic to produce , including the hugely prolific Marcellus and Utica shales , which combined now account for more than 23 BCF of the US ’ total daily production of 70 BFC . The resulting shifting of supply to the Northeast US from the Gulf Coast has redirected pipeline flows and rewritten pricing relationships that have existed for more than two decades . With new pipelines and new processing facilities under constant development in the Northeast , price development at the emerging trading hubs in the region are in a state of flux and pricing forecasting is a constant challenge for traders .

With the establishment of new and increasingly liquid trading points in the Northeast , the Gulf Coast trading locations , such as Henry Hub , are becoming disconnected from the large gas markets in New England and the upper Midwest . With redirected gas flows and the breakdown of many of the historical basis relationships that had existed between Henry Hub and much of the Eastern and Midwest US markets , many traders have been forced to formulate new strategies and uncover new market opportunities .

Spurred in large part by an oversupplied market and low prices , investments in new gas export facilities increased - including LNG liquification plants for exports to the global markets , and new pipelines to service growing demand from the newly liberalized Mexican natural gas market . With the opening of the Mexican markets to wholesale competition , increasing US gas exports to Mexico are providing near term price support for the oversupplied Gulf Coast region . With exports reaching 4 BCF / day at end of 2016 and increasing to an estimated 5 BCF / day in 2017 , planned capacity additions in late 2017 and 2018 could see , in total , as much as 9 BCF / day moving south if the Mexican market demand continues to increase .

Beyond exports by pipe , the development of LNG export facilities , including the now operating Chenier facility at Sabine Pass ( which is now a reliable consumer of about 900MM / day and is expected to increase to 1.5BCFD prior to year ’ s end ), the US has become a significant player in the global LNG markets ; and in the process has effectively connected the domestic market to global natural gas prices . With additional

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NATURAL GAS – NEW SUPPLIES AND GROWING GLOBAL PRICE INFLUENCE