East Daley: U.S. Natural Gas Supply Far Outpaces Demand Signaling Major Price Correction

New Report Bridges the Gap Between Commodity and Equity Market
Analysis in the U.S. Natural Gas and Natural Gas Liquids (NGLs) Markets

CENTENNIAL, Colo.–(BUSINESS WIRE)–East
Daley Capital Advisors, Inc., an energy assets research firm
redefining how markets view risk in midstream and exploration and
production (E&P) companies, released a new report signaling the need for
a major correction to U.S. natural gas prices due to prolific production
expectations from the Marcellus and Utica shale formations in the
Northeast, which is now clashing with growth expectations in the Permian
region in the Midcontinent. The newly released Part Two of the report,
“Righting A Wrong: The Marcellus/Utica Balanced on a Knife’s Edge,”
dissects the interconnection between energy market fundamentals and a
company’s financial performance to create a unique and comprehensive
market outlook.

“Given the current forward curve, U.S. natural gas supply and demand are
extremely unbalanced, with total U.S. supply outpacing demand by a
staggering 11 Bcf/d by the end of 2019,” said Justin Carlson, VP and
Managing Director, Research at East Daley Capital. “This signals a
necessary price correction to incentivize incremental natural gas demand
to help absorb the new production, much of which is expected to be
produced in the Northeast and the Permian.”

Part One of this report focuses on growth limitations in Northeast
Marcellus. Part Two of this report analyzes southwest Marcellus and
Utica as well as the implications on the rest of the country due to
production growth in the Northeast. Producer guidance in the Northeast
suggests production will grow by 14.5 Bcf/d by 2019. However, the
Marcellus and Utica are not without competition as East Daley expects
fundamentals will slash northeast growth to 11 Bcf/d as natural gas
prices adjust to accommodate surging associated gas production in the
Permian. The implications of this analysis also extend to investors,
midstream companies and commodity market players outside the region as
the Marcellus and Utica will put substantial pressure on other producing
regions.

“Basins like the Rockies, Haynesville and the Fayetteville need to pay
close attention to what happens in the Northeast as those tier 2 and
tier 3 basins are facing an uphill battle for market share and will most
likely need to reduce their growth and earnings expectations,” said
Carlson. “The U.S. natural gas market is entering into an intense era of
gas-on-gas competition where only the best positioned will survive.”

Key findings from Part Two (released June 2017) include:

• Given the current forward curve, U.S. natural gas supply and demand is
  unbalanced, with total U.S. supply outpacing demand by a staggering 11
  Bcf/d by 4Q19. This signals a natural gas price correction to
  incentivize 4 Bcf/d of new demand and rationalize 7 Bcf/d of supply.
• Rationalization of supply will reduce growth expectations from Tier 2
  and 3 basins, impacting interests in E&P companies and midstream
  assets without MVC’s.
• Producer guidance in the Northeast suggests production will grow by
  14.5 Bcf/d by 2019. East Daley expects fundamentals will slash
  Northeast growth to 11 Bcf/d as natural gas prices adjust to
  accommodate surging production growth in the Permian.
• Over $2.5 billion in contractual capacity commitments by producers to
  long-haul pipelines creates a significant incentive to produce for
  cash flow generation to cover those commitments.
• To meet these financial commitments, producers will only need to
  increase rig count by 8 in the Southwest Marcellus/Utica and by 10 in
  the Northeast Marcellus.
• Heavy reliance on LNG and LPG exports from substantial single sources
  of demand creates variable risk for supply should a project get
  canceled or have operational downtime.

Key findings from Part One (released May 2017) include:

• Expansions out of northeast Pennsylvania (NE PA) will result in $1.9
  billion in EBITDA split almost evenly between midstream gathering and
  long-haul transportation.
• Higher-risk long-haul transport projects account for $182 million in
  transportation EBITDA but $254 million in midstream gathering EBITDA.
• Productive capacity for producers in NE PA is limited to 14.2 Bcf/d,
  5.2 Bcf/d higher than current production levels.
• Cabot, Chief, Seneca and Shell will all see over 100% increases in
  production growth.
• Williams Partners (WPZ) will realize an upside of $658 million from NE
  PA, driven by production linked through their gathering systems to new
  long-haul expansions.
• ETP’s NE PA gathering system will almost double from 16% to 28% of
  midstream segment EBITDA.

Companies covered in this report include:

East Daley’s asset-level allocation model, combined with in-depth
analysis, brings greater transparency to the midstream energy financial
market by providing investors with deeper, more accurate data to inform
their investment decisions.

For a complimentary copy of the overview of Righting a Wrong, Part Two,
please email [email protected].

About East Daley Capital Advisors, Inc.

East Daley Capital is an energy assets research firm that is redefining
how markets view risk for midstream energy companies. In addition to
using top-level financial data to predict a company’s performance, East
Daley delivers asset-level analysis that provides comprehensive,
fact-based intelligence. Supported by a team of unbiased, experienced
research analysts, East Daley provides its clients unparalleled insight
into how midstream companies operate and generate cash flow. East Daley
uses publicly available fundamental data and intersects that data with a
company’s reported financials to asset-level cash flows. The result
allows for more informed portfolio decisions. Founded in 2014, the
company is based in Centennial, Colorado. For more information visit http://www.eastdaley.com.

Contacts

East Daley Capital
John Lange
Vice-President, Managing
Director of Sales and Marketing
O: 303-499-5940
[email protected]
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