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Catherine Palazzari VP Strategy, Rates & Regulatory Rockies Gas Price Dynamics. Colorado Public Utility Commission July 30, 2008. Cautionary Statement Regarding Forward-looking Statements.
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Catherine PalazzariVP Strategy, Rates & RegulatoryRockies Gas Price Dynamics Colorado Public Utility Commission July 30, 2008
Cautionary Statement RegardingForward-looking Statements This presentation includes forward-looking statements and projections, made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this presentation, including, without limitation, our ability to successfully contract, build and operate the pipeline projects described in this presentation; changes in supply of natural gas; general economic and weather conditions in geographic regions or markets served by El Paso Corporation and its affiliates, or where operations of the company and its affiliates are located; the uncertainties associated with governmental regulation; competition, and other factors described in the company’s (and its affiliates’) Securities and Exchange Commission filings. While the company makes these statements and projections in good faith, neither the company nor its management can guarantee that anticipated future results will be achieved. Reference must be made to those filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the company, whether as a result of new information, future events, or otherwise.
Outline • Rockies Price Dynamics and Drivers • National Pricing Impacts • International Pricing Impacts
Macro Influences on 2008 – 2009 Winter Prices • Demand • Temperature Dependent • Hurricane Season • U.S. and Regional Economy • Supply Growth • Rockies Growth • Shale Growth • Canada Exports • LNG Imports • Bridge Between Supply and Demand • Storage – Intermountain West and National • Adequacy of Interstate Pipeline Facilities • Volatility
El Paso Western Pipeline Group Big Horn Wind River Powder River Green River Denver-Julesburg Uinta Piceance San Juan Raton Anadarko Permian WIC CIG EPNG Mojave Cheyenne Plains
Euro Dollar Relationship to Oil and NG Prices WTI ($/bbl) EURO $
Spot Gas Prices $/MMBtu
Rockies Winter Price Forecast * Forward Curve (Blue) versus Consultant Forecast (Green)
Henry Hub Winter Price Forecasts * Consultant NG Forward Pricing at Henry Hub from various consulting services and NYMEX
Longer Term Forecast & Forward Curves * Consultant NG Forward Pricing at Henry Hub from various consulting services and NYMEX
Basis Differentials January 2005 – July 2008 Current Market Previous Basis Blowouts Pipeline Expansions *Chart displays monthly averages
Forward Market Pricing:July 2007 vs. July 2008 *The current forward curve (Kiodex) indicates that the Rockies prices will continueto trade at a large discount this fall and in the summers of 2009 & 2010
Colorado Gas Demand in 2008 and 2009 • Front Range Growth – Expected to be 1.5% for non-electric loads and 1.8% for overall electric demand growth. • Weather Forecast - Winter will be about one degree above normal, on average, with slightly below-normal precipitation. The coldest temperatures will occur in mid-December and early and mid-January. The most widespread snowstorms will occur in mid-November, mid-December, mid-January, and mid- and late March. • Growth in Wind Power – Approximately 650 MW of new wind power will be in service by the end of the year in Colorado and Wyoming. • Hurricane Forecast – There are 15 named storms and we will have about 8 hurricanes with the probability of U.S. major hurricane landfall to be about 135 percent of the long-period average.
Rocky Mountain Production(Volumes are Wellhead – Measured in MMcfd) Forecast Forecast for 2008: High Case 10,277 Mid Case 9,793 Low Case 9,310 2007: Wellhead total data from IHS database 2008: El Paso forecast
Fayetteville Shale Woodford / Caney Shale Barnett Shale Perryville Deep Bossier Trend Henry Hub Haynesville Shale U.S. Lower 48 Shale Play Development
Incremental Capacity Additions vs.Production Growth Total Supply with Haynesville Growth?? Bcf/d **Relatively inexpensive pipeline expansions have allowed for an overbuild of pipeline capacity
Supply Pull: Fall Off of Canadian Exports Volume Change 2006–2016 (Bcf/d) Demand Outpaces Supply Eastern Canada / Maritimes Western Canada Production ~(2.0-2.5) Demand ~1.5 LNG into Canada Production - Demand ~1.0 Imports ~1.0 Net Exports ~(3.5-4.0) Bcf/d Net Exports ~(0.5) Bcf/d Mexico LNG into Mexico Production ~1.0 Demand ~2.0 Imports ~1.5 Supply Outpaces Demand Source: El Paso Pipeline Group December 2007 Macro
Storage Level By Region * Dashed Line is 5 year Historical Average
EIA Storage Statistics Summary - Working gas in storage was 2,396 Bcf as of Friday, 7/18/08 • Net increase of 84 Bcf from the previous week. • Stocks were 347 Bcf less than last year at this time and 22 Bcf below the 5-year average of 2,418 Bcf. • Stocks in the West Region were 14 Bcf below the 5-year average after a net addition of 11 Bcf.
Cheyenne Basis to Henry Hubvs. Export Load Factors Jan 1995 – July 2008 Historical Relationship Load Factor ~84% HH Hub Basis ~ $0.61
Rockies Export CapacityUtilization Rates January 2005 – June 2008 *Faster than expected supply growth has already brought export load factors Back to levels observed in the summer of 2007
Rockies Exports to the East January 2008 – July 2008 MMcf/d Capacity
Basis Differentials January 2005 – July 2008 Current Market Previous Basis Blowouts Pipeline Expansions *Chart displays monthly averages
Maintenance & Facility Expansions • Rockies Express - Hydrotest from September 3 through September 26, 2008 that could possibly strand 500 – 800 MMcf/d Rockies Gas • Cheyenne Plains – Kirk Compressor Station in service by to supply an additional 70 MDth/d in service by August 2008 • Questar – White River Hub Pipeline 2,565 MDth/d into the Greasewood Hub in service by November 2008 • Wyoming Interstate – Piceance Uprate for 50 MDth/d in service by December 2008 • Wyoming Interstate – Medicine Bow Expansion at Douglas Compressor Station for 130 MDth/d October 2008
Benefits of High Plains Expansion • Pipeline Expansion - 965 MDth/d, 157miles of new 24 and 30-inch pipeline from the Cheyenne Hub to Fort Lupton, and from Young Storage field to Watkins in service by Dec 2008 • Totem Storage Field - 200 MDth/d of withdrawal capability and up to 6.9 Bcf of working inventory in service by July 2008 • Significant growth is expected in the Front Range over the next decade, which is comprised of both heating load and electric generation. • Many Local Distribution Companies are committed to utilizing wind generation to reduce their carbon footprint; however because of wind’s intermittency, natural gas fired generation and storage (such as High Plains and Totem) will be needed to back-stop this intermittency. • High Plains & Totem will be an additional resource in the Rockies to enhance hourly flexibility.
Conclusions • Winter Rockies prices are expected by most consultants to be in the $7.00 to $8.50 range. • The basis between Henry Hub and Rockies could be wider than the average and may approach some historical observed basis differentials when export capacity is at high load factors. • National trends that must be watched – weather, Canadian exports, landed LNG and shale production growth. • Pipeline Maintenance issues are a wild card.