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America’s Natural Gas Market Challenge 2006-2007

America’s Natural Gas Market Challenge 2006-2007. Gas Consumption Could Grow By More Than 20% By 2020. Source: Energy Information Administration. North American Natural Gas Market. For many commodities, price is set by marginal cost of supply.

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America’s Natural Gas Market Challenge 2006-2007

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  1. America’s Natural GasMarket Challenge2006-2007

  2. Gas Consumption Could Grow By More Than 20% By 2020 Source: Energy Information Administration

  3. North American Natural Gas Market • For many commodities, price is set by marginal cost of supply. • For natural gas today (since 2001), price is being set by marginal cost of consumption. • Demand for gas to power gen. continues to grow. • Industrial gas demand levels even as GDP grows.

  4. NYMEX Natural Gas Futures(September 1, 2006) Month-YearSettle ($/MMBtu) Oct-2006 5.88 Nov-2006 8.06 Dec-2006 9.90 Jan-2007 10.56 Feb-2007 10.60 Mar-2007 10.43 Apr-2007 8.38 May-2007 8.23 Jun-2007 8.32

  5. RECENT WEATHER EVENTS July 15-Aug. 5 2006 January 2006 Summer 2005 December 2000 December 2000

  6. Prices versus Weather Winter Summer

  7. Estimated Peak Month Gas Supplies2006-2007 SourceBcf% • Domestic Production 1,600 57.2 • Underground Storage 840 30.0 • Supplementals 6 0.3 • Net Canadian Imports 295 10.6 • LNG Imports 60 2.2 Subtotal 2,801 100.0* • Mexico Exports 35 Total Gas Supplies 2,766 Peak Gas Consumption2,701 Bcf (January 2003) (*Do not add due to rounding)

  8. Working Gas in Underground Storage Compared With 5-Year Range (EIA)

  9. Domestic Natural Gas Production • US natural gas production still accounts for 83 percent of domestic consumption. • LNG provides about 3 percent of gas consumed. • Canada provides the balance.

  10. Shut-In Federal Offshore Gulf Natural Gas Production(EIA, April 2006) Bcf/d $/Mcf Forecast Henry Hub Price * (right axis) Shut In Production (left axis) * Trading on Henry Hub suspended from 9/23 – 10/6 Bcf/d = Billion cubic feet per day, $/Mcf = Dollars per thousand cubic feet

  11. Lower-48 Dry Gas Production vs.Dry Gas Productive CapacitySource: Energy and Environmental Analysis, Inc.

  12. U.S. Natural Gas-Directed Drilling Activity Short-Term Energy Outlook, Oct. 2005

  13. 4.8 4.4 Federal Offshore STATUS OF U.S. UNCONVENTIONAL GAS PRODUCTION Unconventional gas has helped maintain U.S. production and now accounts for 35% of U.S. natural gas supplies. JAF2004074.XLS 19.4 19.2 20.0 2000 2003 15.0 35% of U.S. total 10.0 U.S. Natural Gas Production (Tcf) 6.8 5.8 5.4 5.5 5.0 3.1 2.8 0.0 Associated Gas Total Domestic Production Onshore Conventional Unconventional Gas • Source: • Conventional/Offshore – EIA Annual Reserve Reports. • Unconventional – Advanced Resources International data base.

  14. Lower-48 Annual Dry Production Source: Lippman Consulting, Inc.

  15. Major Portions of the Gas Resource Base Are Not Accessible 21 TCF 346 TCF 40% 100% 31 TCF 100% RestrictedPercentage 43 TCF 56% Approximately 29 trillion cubic feet (TCF) of the Rockies gas resources are closed to development and 108 TCF are available with restrictions.

  16. CanadaDry Gas Production and U.S. Pipeline Exports Source: Lippman Consulting, Inc.

  17. Northern Gas Market Options

  18. Mackenzie Gas Project • Construction on 1.2 Bcf/d pipeline to begin in late 2007. • Expected to recover 7 Tcf from three existing fields with future discoveries anticipated after infrastructure is in place. • Begin flowing gas in 2011. • NWT will need to import workers (current pop. 48,000 over area the size of Texas)

  19. Alaska Natural Gas Pipeline • Proposed 4.5 Bcf/d pipeline from North Slope to NA grid interconnect in Alberta. • Agreement between state of Alaska and ExxonMobil, BP and ConocoPhillips must be approved by Alaska legislature. • Adds 35-40 Tcf of reserves immediately to US total with expectations for more with development of trans infrastructure.

  20. New Supply Must ComeFrom New Areas… …But Will Only Come at a Price that Supports Development. Source: CMS Panhandle Companies

  21. LNG Import Capacity (Bcfd) Total Current Capacity: 5.2 Bcfd Under Construction: 2.3 Bcfd Sources: FERC, US Coast Guard, LNG Express, WGI, LNG Observer (July 2006)

  22. New LNG Import Capacity (Bcfd)Under Construction, July 2006 Total Phase 1 Capacity: 8.6 Planned Phase 2 Capacity: 7.6 Sources: FERC, US Coast Guard, LNG Express, WGI, LNG Observer, Cheniere, State of TX

  23. US LNG Imports Bcf 2006:760 Bcf**(2.1 bcfd) 2005: 631 Bcf (1.7 bcfd) 2004: 624 Bcf (1.7 bcfd 2004 2005 2006* Source: DOE; * Estimated by Waterborne LNG, **EIA Forecast

  24. Jan 2006 Atlantic Basin Natural Gas Prices $/mmbtu Source: Energy Intelligence Unit

  25. National Energy Legislation2005 • 15-year depreciation for new natural gas distribution lines placed in service after 4/11/2005 and before 1/1/2011) • Numerous provisions to maintain current domestic production and to bring forth new supplies of natural gas, including LNG. • A substantial increase in the authorized level for LIHEAP funding to $5.1 Billion. • Repeal of the Public Utility Holding Company Act. • An energy efficiency title that does not discriminate against natural gas, as well as a National Academy of Sciences study on total energy efficiency.

  26. Natural Gas Henry Hub Spot Prices(EIA, September 2006) *The confidence intervals show +/- 2 standard errors based on the properties of the model.

  27. West Texas Intermediate Crude Oil Price(EIA, September 2006) *The confidence intervals show +/- 2 standard errors based on the properties of the model.

  28. North American Natural Gas Market • North American supply/demand balance is and will remain tight. • Gas consumption has the potential to grow. • Supply gains will come. New “frontier” natural gas is necessary. • Natural gas prices remain strong. • High levels of gas price volatility will continue. • LNG imports become an important player in natural gas pricing.

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