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Natural Gas Outlook

Natural Gas Outlook. North American Energy Standards Board (NAESB) Annual Meeting September 17, 2003 Barbara Mariner-Volpe, Energy Information Administration (EIA) Barbara.MarinerVolpe@eia.doe.gov. www.eia.doe.gov. Natural Gas Spot Prices Continue to Be Volatile (Dollars per MMBtu).

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Natural Gas Outlook

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  1. Natural Gas Outlook North American Energy Standards Board (NAESB) Annual Meeting September 17, 2003 Barbara Mariner-Volpe, Energy Information Administration (EIA) Barbara.MarinerVolpe@eia.doe.gov www.eia.doe.gov

  2. Natural Gas Spot Prices Continueto Be Volatile(Dollars per MMBtu) Henry Hub Daily $18.85 on 2/25/03 Midpoint Price Source: Natural Gas Intelligence, Natural Gas Index

  3. Short-Term Outlook for Natural Gas • SUPPLY: Cautious Optimism because of the following expectations • Production increases in ’03 (result of strong drilling) • Net imports (including LNG) increases in 2004 • Storage adequate at start winter 2003 (3 Tcf) • CONSUMPTION :Little change in totals for 2003, 2004 • WELLHEAD PRICE: $5 per Mcf in 2003, decreasing $1 in 2004 • CONSUMER PRICES: higher this winter v. last; expect relief starting in 2Q 2004 • CAVEAT:Extremes in market or weather conditions would change this outlook.

  4. U.S. Gas Production Is Expected to Increase in 2003 and Remain Flat in 2004 Sources: EIA, Short-Term Energy Outlook, September 2003

  5. Both Imports and Exports Are Expected To Increase Through 2004 Notes: Includes LNG. Net Imports equal imports minus exports. Sources: EIA, Short-Term Energy Outlook, September 2003

  6. Natural Gas Import Sources LNG Imports: 2002: 229 Bcf 2003: 488 Bcf 2004: 584 Bcf Sources: History: EIA; Projections: Short-Term Energy Outlook September, 2003.

  7. Working Gas in Underground Storage Compared with 5-Year Range 3500 3000 2500 2000 1500 1000 500 0 Jul-01 Jan-01 Jan-02 Mar-02 Mar-01 Sep-01 Nov-01 May-01 Billion Cubic Feet Projection End-of-Month-Stocks 5-Yr Min/Max Range Jul-04 Jul-02 Jul-03 Jan-03 Jan-04 Mar-03 Mar-04 Sep-04 Nov-04 Nov-02 Nov-03 Sep-02 Sep-03 May-04 May-02 May-03 Monthly Source: EIA, Short-Term Energy Outlook, September 2003

  8. Gas Storage Projections For Winter 2003, Compared to Historical Levels ~ 3,056 Bcf Assuming 5-Yr. Maximum Refill Rate EIA Estimates Working Gas Levels At 3 Tcf by End of October ~ 2, 917 Bcf Assuming 5-Yr. Avg. Refill Rate 2,486 Bcf in Underground Storage as of Sept. 5, 2003 Projections Note: The blue shaded area represents the range of working gas in storage levels during the years 1998 to 2002. Source: EIA Weekly Natural Gas Storage Survey and EIA estimates. Max refill rate is the max monthly rate observed between 1998 and 2002. EIA estimate is based on EIA’s STEO forecast September, 2003.

  9. Natural Gas Spot Prices Are Expected to Average About $4.50 in 2004(Base Case and 95% Confidence Interval*) Natural Gas Spot Prices Are Expected to Average About $4.50 in 2004(Base Case and 95% Confidence Interval*) 10.0 9.0 Average Spot Price: about $5.57 /Mcf in 2003 about $4.52 /Mcf in 2004 Projections 8.0 7.0 6.0 5.0 Dollars per Thousand Cubic Feet 4.0 3.0 2.0 1.0 0.0 Jul-02 Jul-03 Jul-04 Jul-01 Jan-03 Nov-02 Nov-03 Nov-04 Jan-01 Jan-02 Jan-04 Sep-02 Sep-03 Sep-04 Nov-01 Mar-02 Mar-03 Sep-01 Mar-01 Mar-04 May-02 May-03 May-01 May-04 Monthly *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, September 2003.

  10. Total Natural Gas Demand Is Expected to Remain Flat For the Next Two Years 12% 90 Projection History 10% 80 8% 70 6% 60 4% 50 Billion Cubic Feet per Day Percent Change 2% 40 0% 30 -2% 20 -4% 10 -6% 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Percent Change (Left Axis) Total (Right Axis) Sources: History: EIA; Projections: Short-Term Energy Outlook, September 2003.

  11. Households Are Expected to Pay More For Gas Service This Winter Notes: Consumption based on typical per household use for the Midwest, and New England & New York. Sources: History: EIA; Projections: Short-Term Energy Outlook September, 2003.

  12. Summary • Wellhead prices remain high and vulnerable to spikes resulting from developments like severe weather or disruptions in supplies. • Storage is expected to be near the 5-year average level by Nov 1. • LNG holds significant potential as a supply source. • Consumers will pay more for gas this winter v. last. Rate reductions expected in 2004. • A substantial boost in supplies from production or imports will take time and may require additional infrastructure.

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