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CAN WE HAVE A BRIGHT NATURAL GAS FUTURE WITH NEAR-TERM UNCERTAINTY?

CAN WE HAVE A BRIGHT NATURAL GAS FUTURE WITH NEAR-TERM UNCERTAINTY?. Presented by: Paul D. Holtberg GTI Baseline Center May 17, 2001. GAS PRICE FLY UP ($/MMBtu). 1999. 2000. 2001. Source: NYMEX Natural Gas Settle, First Month. CURRENT DEMAND SITUATION.

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CAN WE HAVE A BRIGHT NATURAL GAS FUTURE WITH NEAR-TERM UNCERTAINTY?

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  1. CAN WE HAVE A BRIGHT NATURAL GAS FUTURE WITH NEAR-TERM UNCERTAINTY? Presented by: Paul D. Holtberg GTI Baseline Center May 17, 2001

  2. GAS PRICE FLY UP ($/MMBtu) 1999 2000 2001 Source: NYMEX Natural Gas Settle, First Month

  3. CURRENT DEMAND SITUATION • Mild Or “Normal” Winter Weather In January, February, And March And Slowdown In Economic Activity Moderated Demand In Early 2001 • Growing Gas Demand For Power Generation Still Driver Of Market, But Growing Interest In Coal • Economic Weakness Will Help Industry Adjust In Near Term • Clear Evidence Of Growing Summer Demand Spike Will Compete With Storage Injections For Supply And Hold-Up Prices • Potential Demand Spike Looms In 2002

  4. MONTHLY GAS DEMAND (5-Year Average, Bcf/d)

  5. GROWING SUMMER MINI-PEAK (Bcf/d) 2000 1998 1999 1990 1991

  6. DELIVERED GAS (5-Year Average, Bcf/d)

  7. NEW MERCHANT CAPACITY IMPACT ON DEMAND: BASE CASE ASSUMPTION * Includes only facilities that are under construction and have regulatory approval. **Assumes heat rate of 8,000 Btu/kWh, 40% utilization factor, and 22% offset of existing gas demand.

  8. GROWING SUMMER MINI-PEAK (Bcf/d) 2002 2001 2000 1999

  9. NEWLY ANNOUNCED COAL-FIRED POWERPLANTS (MW)

  10. CURRENT SUPPLY SITUATION • Production Situation Improving Gradually, Expect More Rapid Improvement In 2001 • Visible Production Increase In Fourth Quarter Of 2000 • Lower-48 Takes Still Running At Over 98 Percent Of Deliverability In 2000 • Storage Situation Has Improved Rapidly • Milder Weather In Early 2001 • Slowdown In Economic Activity • However, Injections Will Have To Run At Close To Historically High Levels This Summer For Storage To Complete Recover

  11. BAKER HUGHES RIG COUNT: 1997-2001 Secondary Dip Oil Gas 2001 1997 1998 2000 1999

  12. HISTORICAL GAS PRODUCTION BY WATER DEPTH IN GULF OF MEXICO (Tcf)

  13. LOWER-48 DRY GAS PRODUCTION (Bcf/d) 1997-2000 1983-1986

  14. LOWER-48 GAS DELIVERABILITY & PRODUCTION (Bcf/d) History

  15. HISTORICAL U.S. WORKING GAS STORAGE TRENDS (Bcf) 1994 2000 1995 1996 1999 1997 1998

  16. U.S. WORKING GAS STORAGE TRENDS--2000 VERSUS 1995-99 AVERAGE (Bcf) 1995-1999 Average 2000 1995-1999 Range A J F M M J S O N D J A Source: A.G.A.

  17. U.S. WORKING GAS STORAGE TRENDS--BASE CASE SCENARIO (Bcf) 2001 (Est.) 2000 1995-1999 Range A J F M M J S O N D J A Source: A.G.A.

  18. COMPARISON STORAGE INJECTIONS AND WITHDRAWALS (Bcf/d)

  19. GROWTH IN NET IMPORTS (Bcf)

  20. CANADIAN GAS DELIVERABILITY & PRODUCTION (Bcf/d) History

  21. NET LNG IMPORTS (Bcf)

  22. GAS SUPPLY BY COMPONENT (Bcf/d)

  23. SUMMER PEAK DEMAND VERSUS DELIVERABLE GAS (Bcf/d) Gas Available To Market (L-48+Imports+Other) 2002 2001 2000

  24. SUMMER PEAK DEMAND VERSUS DELIVERABLE GAS (Bcf/d) Potential Shortfall 2002 + Injections Gas Available To Market (L-48+Imports+Other) Deliverable Gas 2002 2001 2000

  25. WELLHEAD GAS PRICE TRENDS: BASE CASE ($/MMBtu) History 2002 2000 2001 Source: NYMEX Natural Gas Settle, First Month And GRI

  26. WELLHEAD GAS PRICE SCENARIOS ($/MMBtu) High: $7.50 High: $6.70 Base Case: $6.35 Base Case: $5.85 Base Case: $5.85 Low: $5.00 Low: $4.95 Avg: $4.25 2000 2001 2002 2003 Source: NYMEX Natural Gas Settle, First Month And GRI

  27. CONCLUSIONS • Demand Growth For Power Generation Being Moderated By High Prices. But, New Coal Won’t Have Impact Until Post-2002. Pretty Much Gas Only For Now • Wellhead Deliverability Is Improving Only Gradually, Expect More Substantial Improvement Post 2003 • Storage Is Recovering More Rapidly Than Previously Anticipated • High Level Of Storage Injections And Growing Summer Peak Will Push Up Gas Prices Creating Second Seasonal Spike • Little Hope For Price Relief Prior To 2004

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