Oil and gas outlook For New York Energy

Oil and gas outlook For New York Energy Forum October 15, 2015 | New York, NY By Adam Sieminski, Administrator U. S. Energy Information Administration Independent Statistics & Analysis www. eia. gov

The U. S. has experienced a rapid increase in natural gas and oil production from shale and other tight resources U. S. tight oil production million barrels of oil per day 5. 0 Monterey (CA) Austin Chalk (LA & TX) Granite Wash (OK & TX) Woodford (OK) Marcellus (PA, WV, OH & NY) Utica (OH, PA & WV) Haynesville Niobrara-Codell (CO, WY) Yeso-Glorieta (TX & NM Permian) Delaware (TX & NM Permian) Wolfcamp (TX & NM Permian) Bonespring (TX & NM Permian) Spraberry (TX & NM Permian) Bakken (MT & ND) Eagle Ford (TX) 2000 2002 2004 2006 2008 2010 2012 2014 4. 5 4. 0 U. S. dry shale gas production billion cubic feet per day Rest of US 'shale' 45 Utica (OH, PA & WV) Antrim (MI, IN, & OH) 40 Bakken (ND) 35 3. 5 Woodford (OK) 3. 0 Barnett (TX) 30 2. 5 Fayetteville (AR) 25 Eagle Ford (TX) 20 2. 0 Haynesville (LA & TX) 1. 5 Marcellus (PA, WV, OH & NY) 15 10 1. 0 0. 5 5 0. 0 0 2002 2004 2006 2008 2010 2012 2014 Sources: EIA derived from state administrative data collected by Drilling. Info Inc. Data are through August 2015 and represent EIA’s official tight oil & shale gas estimates, but are not survey data. State abbreviations indicate primary state(s). New York Energy Forum | Oil and gas outlook October 15, 2015 2

Production growth in top U. S. crude producing regions (Permian, Bakken, Niobrara, and Eagle Ford) reversed in early 2015 monthly percent change three month rolling average 4. 0% 3. 0% 2. 0% 1. 0% 0. 0% -1. 0% -2. 0% -3. 0% Jan 2012 Jan 2013 Jan 2014 Jan 2015 Source: Energy Information Administration, Drilling Productivity Report, October 2015 (chart extends to November 2015) New York Energy Forum | Oil and gas outlook October 15, 2015 3

Forecasts for 2016 global demand have increased faster than supply forecasts 2016 year-over-year supply and demand growth by STEO forecast month million barrels per day 1. 75 1. 50 1. 25 2016 demand growth 1. 00 0. 75 0. 50 2016 supply growth 0. 25 0. 00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct STEO Forecast Month Source: Energy Information Administration, Short-Term Energy Outlook New York Energy Forum | Oil and gas outlook October 15, 2015 4

Forecasts for 2016 OPEC supply have risen on the Iran deal, while non-OPEC forecasts have declined - driven by lower U. S. growth 2016 year-over-year supply growth by STEO forecast month million barrels per day 1. 00 0. 75 2016 non-OPEC supply growth 0. 50 2016 OPEC non-crude liquids supply growth 0. 25 0. 00 2016 OPEC crude supply growth -0. 25 -0. 50 -0. 75 Jan Feb Mar Apr May Jun Jul Aug Sep Oct STEO Forecast Month Source: Energy Information Administration, Short-Term Energy Outlook New York Energy Forum | Oil and gas outlook October 15, 2015 5

Forecast OECD demand growth for 2016 have flattened 2016 year-over-year demand growth by STEO forecast month million barrels per day 1. 25 1. 00 2016 non-OECD consumption growth 0. 75 0. 50 0. 25 2016 OECD consumption growth 0. 00 -0. 25 Jan Feb Mar Apr May Jun Jul Aug Sep Oct STEO Forecast Month Source: Energy Information Administration, Short-Term Energy Outlook New York Energy Forum | Oil and gas outlook October 15, 2015 6

OPEC surplus production capacity in 2015 is the lowest since 2008 OPEC surplus crude oil production capacity million barrels per day 6 5 4 3 F 2 1 AM 12 : 0 0 AM 0: 0 8/ 19 05 12 7/ 19 05 7/ 7/ 0 AM 0: 00 AM 19 05 6/ 7/ 19 05 5/ 7/ 19 05 4/ 7/ 19 05 3/ 19 05 2/ 7/ New York Energy Forum | Oil and gas outlook October 15, 2015 7/ 19 05 7/ 1/ 05 19 6/ 30 / 05 6/ 29 / 19 05 6/ 28 / 19 05 19 6/ 27 / 6/ 26 / 19 05 Note: Shaded area represents 2004 -2014 average (2. 2 million barrels per day). Source: Energy Information Administration, Short-Term Energy Outlook, October 2015 12 : 0 0: 00 AM 12 : 0 0: 0 0 AM 12 : 0 0 AM : 0 12 12 : 0 0 AM 00 0: : 0 12 12 : 00 AM AM 00 : 00 00 0: : 0 12 : 12 12 : 0 0: 00 AM AM 0 7

OECD oil inventories are very high on a days of supply basis and are projected to continue increasing in 2016 OECD commercial oil inventories days of supply 70 October STEO 68 Forecast January STEO 66 64 62 60 58 56 54 52 = 50 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Note: Colored band around days of supply represents the range between the minimum and maximum from Jan. 2010 - Dec. 2014 Source: Energy Information Administration, Short-Term Energy Outlook New York Energy Forum | Oil and gas outlook October 15, 2015 8

Iranian crude oil production is expected to begin increasing in the 2 Q 2016, inventory sales could be sooner New York Energy Forum | Oil and gas outlook October 15, 2015 9

Oil supply and demand begin to rebalance in 2016 Implied stock change million barrels per day World supply and demand million barrels per day (MMb/d) 100 98 96 7 Forecast Implied stock change and balance (right axis) 6 World production (left axis) World consumption (left axis) 5 94 4 92 3 90 2 88 1 86 0 84 -1 82 2010 -Q 1 -2 2011 -Q 1 2012 -Q 1 2013 -Q 1 2014 -Q 1 2015 -Q 1 2016 -Q 1 Source: EIA, Short-Term Energy Outlook, October 2015 New York Energy Forum | Oil and gas outlook October 15, 2015 10

The market-implied confidence band for oil prices is very wide WTI price dollars per barrel 150 125 100 75 50 25 Historical spot price STEO forecast Nymex futures price Current 95% NYMEX futures price confidence interval June 2014 95% NYMEX futures price confidence interval 0 Jan Apr Jul 2013 Oct Jan Apr Jul Oct Jan Apr 2014 Jul 2015 Oct Jan Apr Jul Oct 2016 Source: EIA, Short-Term Energy Outlook, October 2015 New York Energy Forum | Oil and gas outlook October 15, 2015 11

Long-term outlook for the United States New York Energy Forum | Oil and gas outlook October 15, 2015 12

U. S. crude oil production: Supply rises above previous historical highs before 2020 in all AEO 2015 cases, with a range of longerterm outcomes dependent on prices, resources and technology U. S. crude oil production million barrels per day (MMb/d) 20 History 2013 Reference 2013 High Oil and Gas Low Oil Price Resource 15 U. S. maximum production level of 9. 6 million barrels per day in 1970 10 Tight oil 5 Lower 48 offshore Alaska 0 1990 2000 Other lower 48 onshore 2010 2020 2030 2040 Source: EIA, Annual Energy Outlook 2015 New York Energy Forum | Oil and gas outlook October 15, 2015 13

U. S. natural gas trade: Projected U. S. natural gas trade reflects the spread between domestic natural gas prices and world energy prices, along with resource outcomes U. S. natural gas imports and exports trillion cubic feet History 2013 16 billion cubic feet per day 2013 Projections 2013 40 Lower 48 states LNG exports 12 Alaska LNG exports 30 20 8 Pipeline exports to Mexico 4 10 0 0 Pipeline exports to Canada -4 LNG imports -8 2000 2010 High Oil and Gas Resource Reference 2020 2030 2040 -10 Pipeline imports from Canada 2020 2030 2040 Low Oil Price 2020 2030 -20 2040 Source: EIA, Annual Energy Outlook 2015 New York Energy Forum | Oil and gas outlook October 15, 2015 14

U. S. becomes a net exporter of natural gas in the near future U. S. dry natural gas trillion cubic feet per year billion cubic feet per day History 40 Projections 2013 100 30 75 Consumption 20 50 Domestic supply 10 Net exports 0 0 -10 1990 25 -25 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: EIA, Annual Energy Outlook 2015 New York Energy Forum | Oil and gas outlook October 15, 2015 15

Key takeaways - Oil • Tight oil clearly matters for measures of U. S. oil import dependence and ability to pressure OPEC • Policy debate over removing restrictions on exports of U. S. crude oil – Recent EIA analysis shows no significant effects for consumers, producers, or refiners in cases where domestic production remains below 11 million barrels per day (b/d) – If U. S. production were to approach or exceed 12 million b/d, as might occur under high resource assumptions, U. S. consumers realize a small reduction in gasoline prices and crude producers, modestly raise output if crude export restrictions are removed; however, the largest effects (in opposite directions) are felt by producers and refiners • The Middle East remains the center of “easy oil” and will remain key to the future of the global oil market New York Energy Forum | Oil and gas outlook October 15, 2015 16

How much will low prices stimulate oil demand? New York Energy Forum | Oil and gas outlook October 15, 2015 17

The direct price effects can raise gasoline demand---as occurred recently in the United States gasoline product supplied million barrels per day (4 -quarter moving average) dollars per gallon excluding taxes (nominal) (4 -quarter moving average) 9. 1 3. 5 9 3 Gasoline product supplied Gasoline retail sales price to end users 8. 9 2. 5 8. 8 2 8. 7 1. 5 8. 6 1 8. 5 0. 5 8. 4 0 2011 2012 2013 2014 2015 Source: Energy Information Administration, Petroleum Supply Monthly and Petroleum Marketing Monthly (as of September 2015) New York Energy Forum | Oil and gas outlook October 15, 2015 18

Gasoline demand estimates vary New York Energy Forum | Oil and gas outlook October 15, 2015 19

The macro impacts are also important---Non-OECD oil consumption growth declined recently as GDP growth slowed oil consumption percent change (year-on-year) 8 non-OECD consumption growth 7 non-OECD GDP growth* 6 5 4 3 2 1 0 2011 2012 2013 2014 2015 Source: Energy Information Administration, IHS Global Insight (as of September 2015) * Oil consumption weighted GDP New York Energy Forum | Oil and gas outlook October 15, 2015 20

Prices and economic growth are important, but policy, preferences, and technology may have a bigger long-term impact • What types of consumption and pricing policies will be enacted across the world? – Fuel subsidies – Environmental policies – Domestic security policies • What will light-duty vehicle trends look like? – Ownership rates – Efficiency and emissions standards – Technology/alternative fuels • Where will goods be produced and how will they be moved? • Will there be major industrial sector efficiency improvements or fuel switching? New York Energy Forum | Oil and gas outlook October 15, 2015 21

2015 – 2016 Winter Fuels Outlook New York Energy Forum | Oil and gas outlook October 15, 2015 22

NOAA forecasts U. S. heating degree days this winter to be 7% lower than last winter and below the 10 -year average U. S. current population-weighted heating degree days 1, 100 1, 000 900 800 700 600 500 400 300 200 100 0 10 -year average Oct 2012 -2013 Nov 2013 -2014 Dec Jan 2014 -2015 Feb Mar 2015 -2016 Forecast Note: EIA calculations based on National Oceanic and Atmospheric Administration (NOAA) data. Horizontal lines indicate 10 -year average over the period Oct. 2005 – Mar. 2015. Projections reflect NOAA's 14 -16 month outlook. Source: EIA Short-Term Energy Outlook, October 2015. New York Energy Forum | Oil and gas outlook October 15, 2015 23

Heating fuel market shares vary across U. S. regions Share of homes by primary space-heating fuel and Census Region Midwest Northeast West natural gas electricity heating oil/kerosene propane wood other/no heating South U. S. total 117 million homes Source: U. S. Energy Information Administration based 2014 American Community Survey New York Energy Forum | Oil and gas outlook October 15, 2015 24

Expenditures are expected to be lower this winter (October 1–March 31) even if weather is significantly colder than currently forecast Percent change in fuel bills from last winter (forecast) Base case forecast If 10% warmer than forecast If 10% colder than forecast Heating oil -25 -33 -16 Natural gas -10 -17 -4 Propane * -18 -30 -3 Electricity -3 -7 0 Fuel bill Note: * Propane expenditures are a volume-weighted average of the Northeast and Midwest regions. All others are U. S. volume-weighted averages. Propane prices do not reflect prices locked in before the winter heating season starts. Source: EIA Short-Term Energy Outlook, October 2015. New York Energy Forum | Oil and gas outlook October 15, 2015 25

Key takeaways – winter fuels • EIA expects heating fuel prices for homes that heat with natural gas, propane, and heating oil to be lower than prices last winter; residential electricity prices are expected to be about the same as last winter • The latest outlook from government weather forecasters expects winter temperatures east of the Rocky Mountains to be warmer than last winter, with projected heating degree days in the Northeast, Midwest, and South respectively about 13%, 11%, and 8% lower; in the West, this winter is expected to be 12% colder than last winter • Projected changes in average U. S. household heating fuel expenditures from last winter are: – – 10% lower for homes that heat primarily with natural gas 25% lower for homes using oil heat 18% lower for homes using propane heat 3% lower for homes that heat with electricity New York Energy Forum | Oil and gas outlook October 15, 2015 26

Heating oil prices are forecast to be 15% lower than last winter, propane prices are forecast to be 10% lower, and natural gas prices are forecast to be 4% lower U. S. average residential winter heating fuel prices dollars per million Btu 40 Natural gas Heating oil Propane 30 forecast 20 10 0 2009 -10 2010 -11 2011 -12 2012 -13 2013 -14 2014 -15 2015 -16 Winter (October - March) Source: EIA Short-Term Energy Outlook, October 2015. New York Energy Forum | Oil and gas outlook October 15, 2015 27

EIA has expanded the depth and breadth of its program, with more on the way • International Energy Portal • Monthly crude-by-rail data • Analysis of the impacts of the Clean Power Plan • Excel add-in tool for automatic data updates • Report on federal subsidies in energy markets • Ground Water Protection Council data collaboration • Winter fuels prices for more states • Domestic oil and gas production (EIA -914) New York Energy Forum | Oil and gas outlook October 15, 2015 • Hourly electricity load data (EIA 930) • Effects of Removing Restriction on U. S. Crude Oil Exports • Coming soon – Drilling cost data – Distributed solar generation data and analysis – Integrating Customs and Border Protection exports data received on a more timely basis into EIA products 28

For more information U. S. Energy Information Administration home page | www. eia. gov Annual Energy Outlook | www. eia. gov/aeo Short-Term Energy Outlook | www. eia. gov/steo International Energy Outlook | www. eia. gov/ieo Monthly Energy Review | www. eia. gov/mer Today in Energy | www. eia. gov/todayinenergy State Energy Profiles | www. eia. gov/state Drilling Productivity Report | www. eia. gov/petroleum/drilling/ International Energy Portal | www. eia. gov/beta/international/? src=home-b 1 New York Energy Forum | Oil and gas outlook October 15, 2015 29