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Supply and Demand Market Assessment Supply and Demand Market Assessment Prepared for: Oregon LNG Marketing Company, LLC Navigant Consulting, Inc. 3100 Zinfandel Drive, Suite 600 Rancho Cordova, CA 95670 USA 916.631.3200 www.navigant.com January 10, 2014 Disclaimer: This Supply and Demand Market Assessment was prepared by Navigant Consulting, Inc. for the benefit of Oregon LNG Marketing Company, LLC. This work product involves forecasts of future natural gas demand, supply, and prices. Navigant Consulting applied appropriate professional diligence in its preparation, using what it believes to be reasonable assumptions. However, since the report necessarily involves unknowns, no warranty is made, express or implied. Table of Contents 1. Executive Summary .......................................................................................................... 1 2. Introduction ....................................................................................................................... 3 2.1 Purpose of the Report ......................................................................................................................... 3 2.2 Overview of Oregon LNG Export Project ........................................................................................ 4 3. Supply and Demand Forecast and Market Assessment ............................................ 6 3.1 Introduction and Summary of Outlook ........................................................................................... 6 3.2 Gas Resources ...................................................................................................................................... 9 3.2.1 Size of the Gas Resource ...................................................................................................... 9 3.2.1.1 Canadian Resources ............................................................................................... 9 3.2.1.2 U.S. Resources ..................................................................................................... 16 3.2.1.3 North America Resources .................................................................................... 18 3.2.2 Character of Shale Gas Resources ..................................................................................... 18 3.2.3 Improvements in Hydraulic Fracturing and Horizontal Drilling ................................ 20 3.3 Modeling Overview .......................................................................................................................... 23 3.4 Macro Assumptions .......................................................................................................................... 25 3.4.1 Oil Prices .............................................................................................................................. 25 3.4.2 Economic Growth ............................................................................................................... 25 3.5 Supply ................................................................................................................................................. 26 3.5.1 Background .......................................................................................................................... 26 3.5.2 Forecast................................................................................................................................. 27 3.6 Demand .............................................................................................................................................. 31 3.6.1 Background .......................................................................................................................... 31 3.6.2 Forecast................................................................................................................................. 33 3.7 Risks to the Supply and Demand Forecasts .................................................................................. 35 3.7.1 Environmental Issues ......................................................................................................... 35 3.7.2 Market Issues ....................................................................................................................... 36 3.8 Supply-Demand Balance .................................................................................................................. 37 3.9 Inter-Regional Patterns ..................................................................................................................... 40 3.10 Market Outlook ................................................................................................................................. 42 3.11 Conclusions ........................................................................................................................................ 43 i List of Figures and Tables Figures: Figure 1: The Project and Area Pipelines............................................................................................................... 5 Figure 2: North American Shale Gas Basins ......................................................................................................... 7 Figure 3: Montney and Horn River Production History ................................................................................... 12 Figure 4: General Map of Western Canada Gas Resource Plays ...................................................................... 13 Figure 5: U.S. Potential Gas Committee Gas Resource Estimates .................................................................... 17 Figure 6: Marcellus Production History .............................................................................................................. 18 Figure 7: Henry Hub Price History ...................................................................................................................... 20 Figure 8: Eagle Ford Rig Efficiency ...................................................................................................................... 21 Figure 9: Well Deliverability ................................................................................................................................. 22 Figure 10: U.S. Gas Production and Rig Count History .................................................................................... 22 Figure 11: WTI Price Assumed in Natural Gas Forecast ................................................................................... 25 Figure 12: Historical Canadian Natural Gas Production .................................................................................. 26 Figure 13: Canadian Dry Gas Production Forecast Breakout ........................................................................... 28 Figure 14: Canadian Shale Gas Production Forecast ......................................................................................... 29 Figure 15: North American Natural Gas Production Forecast ......................................................................... 30 Figure 16: U.S. Natural Gas Production History ................................................................................................ 30 Figure 17: U.S. and Canada Shale Gas Production Percentage ........................................................................ 31 Figure 18: Canadian Natural Gas Demand Forecast, by Location ................................................................... 34 Figure 19: Canadian Natural Gas Demand Forecast, by Type ......................................................................... 34 Figure 20: Alberta Natural Gas Demand Forecast, by Type ............................................................................. 35 Figure 21: North American Natural Gas Demand Forecast ............................................................................. 35 Figure 22: Canadian Supply-Demand Balance ................................................................................................... 38 Figure 23: Net Canadian Pipe and LNG Export Forecast ................................................................................. 39 Figure 24: North American Supply-Demand Balance ....................................................................................... 39 Figure 25: U.S. Northeast Natural Gas Demand by Sourcing Area ................................................................. 41 Figure 26: Delivered Cost of Gas: B.C. versus Marcellus .................................................................................. 41 Figure 27: Natural Gas Price Outlook .................................................................................................................. 42 Tables: Table 1: Canadian Natural Gas Resource Estimates .......................................................................................... 11 Table 2: Major Canadian Gas Resource Plays ..................................................................................................... 12 Table 3: Gas Resource Life (to supply domestic demand plus pipeline exports) .......................................... 14 Table 4: Gas Resource Life (to supply domestic demand only) ....................................................................... 15 Table 5: North American Natural Gas Resource Life ........................................................................................ 18 Table 6: Economic Growth Assumptions ...........................................................................................................
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