Natural Gas Outlook

1
Natural Gas Outlook

• National Association of
• State Energy Officials
• State Heating Oil and Propane Conference
• August 30, 2004
• William Trapmann
• Energy Information Administration (EIA)
• William.Trapmann_at_eia.doe.gov

www.eia.doe.gov
2
Presentation Coverage

• Natural Gas Prices
• Production Trends
• Natural Gas Imports
• Storage
• Short-Term Market Outlook

3
Natural Gas Prices
4
Natural Gas Prices Generally Track Oil Prices
NYMEX Natural Gas Futures Near-Month Contract
Settlement Price, West Texas Intermediate Crude
Oil Spot Price, and Henry Hub Natural Gas Spot
Price
Henry Hub Spot Price
NYMEX Futures Price

• Update

WTI Spot Price
5
Why Are Current Natural Gas Prices High?

• High Petroleum Prices
• Returns to Drilling
• Lags in Bringing New Production to Market
• Net Imports Flat
• Demand

6
Natural Gas Production Trends
7
Reserve Additions Exceeded Production for 8 of
the Last 9 Years
Source Energy Information Administration,
Advance Summary of U.S. Crude Oil, Natural Gas,
and Natural Gas Liquids Reserves 2002 Annual
Report
8
Drilling Increases Are Necessary to Maintain
Production Levels A Growing Percentage of
Production Is from Wells Three Years Old or Less
60
50
40

• lt 1 Year Old

• lt 1 Year Old

Percent Total Wellhead
Capacity

• lt 2 Years Old

• lt 2 Years Old

30

• lt 3 Years Old

• lt 3 Years Old

20
10
0
2003
1993
Sources EIA.
9
Gas Rigs Tend To Follow Spot Prices With A Lag


Source Natural Gas Intelligence Weekly Gas Price
Index, Baker-Hughes Weekly US Rig Report.
10
Rig Growth Continues but Production Remains Flat
Sources EIA, Baker Hughes Gas Rig Counts,
Short-Term Energy Outlook, August 2004
11
Natural Gas Imports
12
Pipeline Imports Are Expected to Decline, While
LNG Imports Increase
LNG Imports 2003 507 Bcf 2004 690 Bcf 2005
800 Bcf
Sources History EIA Projections Short-Term
Energy Outlook August, 2004.
13
LNG Imports at Existing Terminals
History
Projection
Cove Point, MD
Total
Elba Island, GA
Lake Charles, LA
Everett, MA
Source History, Natural Gas Monthly 2004-2005
Short-Term Energy Outlook, August 2004.
14
There Are Numerous Proposals For New LNG Import
Facilities
Projects shown as of June 2004
Sources Energy Information Administration, U.S.
LNG Markets and Uses June 2004 Update.
15
Natural Gas Storage
16
Seasonal Natural Gas Load Patterns By Sector (BCF)
Residential
Commercial
Industrial
Electric Power
Source EIA.
17
Underground Natural Gas Storage Facilities In
the Lower 48 States
18
Natural Gas in Storage Now Exceeds The 5-Year
Average
Note Actual working gas stocks denoted by red
line blue lines show the maximum and minimum
volumes in 1999-2003.
Source Energy Information Administration, Weekly
Natural Gas Storage Report, August 12, 2004.
19
Natural Gas in Storage Entering Heating SeasonIs
Expected to Exceed the Range of the Past Five
Years
Projection 3,196 Bcf
Refill Volumes
Working Gas in Storage (billion cubic feet)
Stocks at end of March
Storage Stocks as of the End of October
Source Historical data EIA Projected data
Short-Term Energy Outlook August 2004
20
U.S. Liquefied Natural Gas Facilities
Notes Map excludes the import facility in Puerto
Rico. Other includes stranded utilities,
vehicular fuel facilities, nitrogen rejection
units and other special processing
plants. Source Energy Information
Administration, U.S. LNG Markets and Uses June
2004 Update, June 2004.
21
LNG Facilities in the U.S. Northeast

• NewWMF

Source Adapted from Energy Information
Administration, U.S. LNG Markets and Uses June
2004 Update, June 2004.
22
Short-Term Price Outlook
23
Short-Term Outlook for Natural Gas

• Continued price pressure
• No short-term relief expected
• Consumption flat growth in 2004 and 2005
• Production marginal growth through 2005
• New well completions are offset by the production
  declines for existing wells
• Net imports slight increase in 2004
• and then decrease in 2005
• Increasing LNG imports are offset by decreasing
  pipeline imports from Canada

24
Natural Gas Spot Prices Are Expected to Average
6.21 This Year(Base Case and 95 Confidence
Interval)
Average Spot Price about 6.21 /Mcf in
2004 about 6.60 /Mcf in 2005
The confidence intervals show /- 2 standard
errors based on the properties of the model. The
ranges do not include the effects of major supply
disruptions. Sources History EIA
Projections Short-Term Energy Outlook, August
2004.
25
U.S. Natural Gas Prices Are Expected to Trend
Upward Through 2005
History
Outlook
Sources History EIA Projections Short-Term
Energy Outlook, August 2004.
26
Heating Demand IndicatorsProbability Ranges for
U.S. Degree-Days This Winter
Winter weather was warmer than normal last year.
Gas-weighted heating degree-days
Sources History EIA Projections Short-Term
Energy Outlook, August 2004.
27
Volatility HappensIllustrative Supply and Demand
Curves
28
Household Winter Heating Fuel Summary
Notes Consumption based on typical per household
use for the regions noted. Sources History
EIA Projections Short-Term Energy Outlook
August 2004.
29
www.eia.doe.gov