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Natural Gas Prices and Supplies in the Northeast-Midwest Region

Natural Gas Prices and Supplies in the Northeast-Midwest Region. April 7, 2003. Guy Caruso Administrator Energy Information Administration. Outline. Background on the natural gas industry and markets Brief discussion of storage operations

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Natural Gas Prices and Supplies in the Northeast-Midwest Region

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  1. Natural Gas Prices and Supplies in the Northeast-Midwest Region April 7, 2003 Guy Caruso Administrator Energy Information Administration

  2. Outline • Background on the natural gas industry and markets • Brief discussion of storage operations • Recent and current events in natural gas markets • Overview of EIA’s natural gas projections • Concluding remarks

  3. U.S. Gas Industry at a Glance

  4. Marketer Industrial, Electric Utility, Large Commercial Consumers Local Distribution Company Residential and Small Commercial Consumers Producer Traditional Pipeline Company Restructured Market Transaction Paths for Natural Gas Flows and Purchases

  5. Producing basins and regional natural gas flows

  6. Storage Supplies Help Satisfy Demand Peaks

  7. Natural Gas Storage Attributes • Critical supply component during heating season • Smoothes gas production throughout the year • Help satisfy sudden shifts in demand and supply • Supports pipeline operations and hub services

  8. Natural Gas Storage in the U.S. Underground Storage: • Depleted reservoirs in oil and/or gas fields • Aquifers • Salt cavern formations (high deliverability) Additional Storage: • Liquefied natural gas (LNG) facilities • Pipeline line pack • Peaking facilities (LNG and propane)

  9. E C D B A Salt Caverns B Mines A C Aquifers D Depleted Reservoirs Source: PB - KBB, Inc. E Hard - rock Caverns Types of Underground Storage

  10. Consuming West Consuming East Depleted Fields Salt Caverns Aquifers Producing Underground Natural Gas Storage Facilities in the Lower 48 States Note: Aquifers in the Producing Region have been displayed as depleted oil/gas fields to preserve data confidentiality.

  11. Midwest (East North Central) Northeast (New England and Middle Atlantic) 9 LNG Facilities 127 Underground Storage Facilities 43 LNG Facilities 82 Underground Storage Facilities Import Facility for LNG) = LNG Facilities = Underground Natural Gas Storage Facilities Where underground storage is not feasible, LNG facilities provide peaking service

  12. Recent Natural Gas Wellhead Prices Have Been Close To Record Levels Sources: History: EIA; Projections: Short-Term Energy Outlook, April 2003

  13. High Natural Gas Prices in Winter 2002-2003 • High crude prices • Cold temperatures in major gas markets • Relatively low storage volumes • Weak production • Low net imports

  14. Average Spot Prices by Month Natural Gas Prices Increased And Were Volatile During The Past Winter Note: The West Texas Intermediate crude oil price, in dollars per barrel, is converted to $/MMBtu using a conversion factor of 5.8 MMBtu per barrel. Source: NGI's Daily Gas Price Index (http://Intelligencepress.com)

  15. This Winter Was Colder Than Last Winter(Cumulative Heating Degree Days, Heating Season 2002-2003) Source: Energy Information Administration, derived from Heating Degree Day Monitoring, National Climatic Center.

  16. Working Gas Stocks Began Strong But Declined With Large Withdrawals

  17. Most Production Flows from Wells Not More Than Three Years Old Source: Energy Information Administration.

  18. Gas Rigs Tend To Follow Spot Prices With A Lag Source: Natural Gas Intelligence Weekly Gas Price Index, Baker-Hughes Weekly US Rig Report.

  19. Natural Gas Net Imports Declined for the First Time Since 1986 U.S. Natural Gas Net Imports

  20. Natural Gas Market Outlook • Demand is projected to increase through 2004 • Domestic production is expected to expand with rising gas rigs drilling • Net imports are projected to return to an increasing trend • Storage refill will depend on weather and other market conditions this summer

  21. U.S. Gas Consumption Varies by location and by season: • Colder climates with large heating loads show the most seasonal variation • Some areas peak during cooling season due to electricity load Some Consumers can Switch Fuels: • Obtain service that can be interrupted • Provides flexibility for service providers during periods of peak demand

  22. Total Natural Gas Demand Is Expected to Expand For the Next Two Years Note: This chart replaces a previous Figure 12 because of revised data for April 2003. Sources: History: EIA; Projections: Short-Term Energy Outlook, April 2003.

  23. Electric Power Natural Gas Industrial Production Capacity (Gigawatts) Index 100 300 98 Est. 250 96 94 Combustion 200 92 Turbine Forecast 90 150 88 100 86 84 Combined 50 82 Cycle 80 0 2000 2001 2002 2003 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Large-Volume Natural Gas Customers Are Expected To Increase Demand Sources: Federal Reserve Board, EIA, RDI Corporation (2003 Electricity Capacity)

  24. Natural Gas Storage Volumes Vary At The Start Of The Heating Season Working Gas Stock as of November 1

  25. Working Gas Refill Volumes By Year Volume needed if target is: 3,000 Bcf 2,700 Bcf Natural Gas Volumes Needed For Selected Storage Refill Targets

  26. Natural Gas Spot Prices Will Decline From The Level of the First Quarter of 2003 (Base Case and 95% Confidence Interval) Sources: History: Natural Gas Week; Projections: Short-Term Energy Outlook, April 2003.

  27. 35 35 History History Projections Projections Net Net 30 30 Imports Imports 25 25 Consumption Consumption Production Production 20 20 Natural Gas Net Imports, 2001, 2025 Natural Gas Net Imports, 2001, 2025 (trillion cubic feet) (trillion cubic feet) 15 15 6 6 5 5 2001 2001 4 4 10 10 2025 2025 3 3 Source: AEO 2003 Source: AEO 2003 2 2 5 5 1 1 0 0 Pipeline Pipeline Liquefied Natural Gas Liquefied Natural Gas 0 0 2010 2010 1970 1970 1980 1980 1990 1990 2000 2000 2025 2025 Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025(1970-2025, trillion cubic feet)

  28. Mechanisms to Manage Price Risk • Trading in Futures Contracts • Longer-Term Contracts • Fixed-Price Contracts • Storage for Physicals Hedging • Ability to Use an Alternate Fuel • Residential Customers Can Choose Budget • Payment Plans

  29. Near-Term Natural Gas Market Issues • Supply:Will supply increase enough to satisfy growth in consumption? Will Boom and bust cycles discourage investment? • Weather: The possibility of a hot summer or cold winter would put upward demand pressure on gas markets. • Storage: Will refill be adequate for next winter’s demand? • Consumption: Will forecasted growth in natural gas consumption be realized? How will consumption be affected by price volatility, fuel competition and service requirements of electric generators? • Pipelines: Will necessary capital investments be made to expand delivery capability?

  30. Energy Information Administration • Website: www.eia.doe.gov • Key EIA Staff Contacts for Natural Gas: • Beth Campbell, (202)586-5590, elizabeth.campbell@eia.doe.gov • Barbara Mariner-Volpe, (202)586-5878, barbara.marinervolpe@eia.doe.gov • Bill Trapmann, (202)586-6408, william.trapmann@eia.doe.gov

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