PLATTS BENTEK METHODOLOGY

Bob Yu Senior Analyst, Quantitative Modeling June 13, 2016

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Balance

The Platts Bentek Approach

3

Data

Modeling

Forecast

Hist

ory

Research

Optimization

Meter

Prod

Power Utilization

Corridor Flows Storage

RCI Policy/ Economics

Dmd

Flow / Capacity

Pipeline Exp

Type Curves

Processing GIS LNG Trade Flows

Power Plant

Industrial

Infrastructure

Rig Data

NGL Supply EIA Well

Data CEMS

Note: Graphic above Is not inclusive of all data, research and model performed by Platts Bentek.

FACTS

INSIGHT

WISDOM

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The Platts Bentek Approach

40 50 60 70 80 90

Bcf

US Supply

Production Sample LNG Sendout Sample

Imports Sample Supply Benchmark

Modeled Supply Forecast Supply

-

50

100

150

Bcf

US Demand

RCI Sample Power Sample

Exports Sample Demand Benchmark

Modeled Demand Forecast Demand

- 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

Bcf

US Storage Inventory

Historical US Inventory Forecast US InventoryBENPOSIUM 2016 4

Source: Platts Bentek CellModel/CellCAST

MODELING HISTORICAL TRENDS

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• Modeling approach is Bottom-Up. Fundamentals are estimated at the regional level and then grossed up to a US number.

• Many different statistical methods are used in the estimations, however, the flow sample is the primary driver. Transparency is key.

• Models have a hierarchy. There are multiple checks at each level to ensure accuracy. • Balancing item helps us track EIA. • Are the benchmarks always right?

Modeling Historic Trends

Regional US Inputs

(600) (400) (200) - 200

18,000 20,000 22,000 24,000

MM

cf/d

(Cha

nge)

MM

cf/d

Texas Natural Gas Marketed Production (EIA)

Revision MarketedProduction_Jan2016MarketProduction_May2016

BENPOSIUM 2016 6 Source: EIA

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

MM

cf

NE Flows on REX

CHANDLERSVILLE CS TO CLARINGTON-E2W East Ohio - REX - ClaringtonEureka Hunter / REX Cameron Ohio River System/REX Bearwallow MonRICE/REX GUNSLINGER Seneca Plt

20,500

21,000

21,500

22,000

22,500

23,000

23,500

MM

cf

Northeast Dry Gas Production

Transparency

Production dropped 544 MMcf from 2/29 – 3/1

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Source: Platts Bentek Supply/Demand, Basic Supply Market Model, Maintenance Calendar

Historical Accuracy

-

5

10

15

20

25

30

35

40

Bcf

/d

US Power Burn Demand – EIA vs. Platts Bentek

Sample EIA Platts Bentek Estimate

Source: Platts Bentek Power Burn Daily report

Since 2015… Average Error: 58 MMcf/d Average Sample Size: 72%

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Getting the Story Right Matters

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

(1,500)

(1,000)

(500)

-

500

1,000

1,500

$/M

MB

tu

Bcf

Henry Hub Vs. Rolling 5-Year Storage Surplus/Deficit

Historic Surplus/Deficit Henry Hub Cash

Warm winter leads to inventory surplus, crushing prices

Polar Vortex causes record demand, driving prices higher

Production continues to ramp, demand falls as US experiences warm winter

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Source: EIA, NYMEX

FORECASTING FUTURE TRENDS

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Prediction

DEMAND • The three main drivers of demand:

weather, market growth, market share. • A regression of historic demand to 10-

year normal temperatures give a starting point for the forecasts (seasonality).

• Market growth is defined as an increase in demand due to structural shifts (new facilities being built, new ways to consume gas, etc.).

• Market share is defined as demand that is sensitive to pricing (economic fuel switching).

• Demand forecasts are a combination of

multiple linear regression models to capture these three drivers.

PRODUCTION • Production projections are starting point.

• Type curves are developed for each class of well and by orientation for each basin.

• Each basin is fitted with a type curve in order to predict future production trends in the area from new and existing wells.

• Projections are then updated to account

for infrastructure constraints, IRRs, well inventory, etc.

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Production Projection Example

-

1

2

3

4

5

6

7

8

Bcf

/d

Eagle Ford Gas Production Projection

Directional Vertical Horizontal History Future

History Projection

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Source: Platts Bentek Production Monitors

Demand Projection Example

-

2

4

6

8

10

12

Bcf

/d

Northeast Power Burn Demand

History Seasonality Market Growth Market Share

- 20 40 60 80

100

Deg

rees

Fah

renh

eit

NE Population-Weighted Temperatures

(20,000) (10,000)

- 10,000 20,000 30,000 40,000

MW

NE New Gas Build and Power Plant

Retirements

NewBuilds Retirements

$- $20.00 $40.00 $60.00

$/M

Wh

Cost of Generation Differences – Coal Vs. Gas

$/MWh - Coal (CAPP)

$/MWh - Gas (Dom South)

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Source: Platts Bentek CellModel/CellCAST

Balancing the Forecasts

(2,500)

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000

-

20

40

60

80

100

120

MM

cf/d

(Ann

ual S

uppl

y –

Dem

and)

Bcf

/d (S

uppl

y, D

eman

d)

US Supply and Demand Balance

Annual Supply - Demand Historical Supply Historical DemandSupply Forecast Demand Forecast

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Source: Platts Bentek CellModel/CellCAST

Getting the Story Right Matters

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$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

(1,500)

(1,000)

(500)

-

500

1,000

1,500

$/M

MB

tu

Bcf

Henry Hub Vs. Rolling 5-Year Storage Surplus/Deficit

Historic Surplus/Deficit Forecast Surplus/Deficit Henry Hub Cash

Demand growth outpaces supply, causing declining inventories in the short

term

???

Source: Platts Bentek CellModel/CellCAST, EIA, NYMEX

Back-Testing the Fundamental Forecasts

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$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

-

100

200

300

400

500

600

700

800

900

1,000

$/M

MB

tu

Bcf

Inventory Surplus/Deficit Forecast (July 2015) Actual Inventory Surplus/DeficitNYMEX (July 2015) Bentek Henry Hub Forecast (July 2015Henry Hub Cash

Source: Platts Bentek Nat Gas Market Call

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Energy Metro Desk Storage Forecast Rankings

17

Source: Energy Metro Desk

Takeaways

• The foundation of Platts Bentek estimates is good data!

• Transparency is key!

• Platts Bentek forecasts balanced markets.

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Thank you!

QUESTIONS? Platts Analytics Bob Yu Senior Analyst, Quantitative Modeling byu@spglobal.com 720-264-6752 1800 Larimer Street in Denver, CO