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Energy Information Administration’s Natural Gas Outlook

Energy Information Administration’s Natural Gas Outlook. Presented to: Kansas Corporation Commission October 28, 2003 Presented by: William Trapmann Energy Information Administration (EIA) william.trapmann@eia.doe.gov. www.eia.doe.gov. Outline.

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Energy Information Administration’s Natural Gas Outlook

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  1. Energy Information Administration’sNatural Gas Outlook Presented to: Kansas Corporation Commission October 28, 2003 Presented by: William Trapmann Energy Information Administration (EIA) william.trapmann@eia.doe.gov www.eia.doe.gov

  2. Outline • Background on the natural gas industry and markets • Natural gas supply and demand outlooks • Natural gas market outlook • Natural gas market impacts • Concluding remarks

  3. Background

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

  5. Regional Fuel Profile Kansas national population and energy use rankings: • Population – 32th (2002) • Total per capita energy – 18th (2000) • Natural Gas Consumption (2002) • Residential – 71,002 MMcf • Commercial – 38,812 MMcf • Industrial – 105,400* • Electric Power – 23,126 MMcf • Natural Gas Production (2002) – 450,801 MMcf *Estimated.

  6. 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) increase in 2004 • Storage adequate at start of winter 2003 (3+ Tcf) • CONSUMPTION :Little change in totals for 2003, 2004 • WELLHEAD PRICE: almost $5 per Mcf in 2003, decreasing $1 in 2004 • CONSUMER PRICES: higher this winter v. last; expect some relief starting in 2Q 2004 • CAVEAT:Extremes in market or weather conditions would change this outlook.

  7. Natural Gas Supply Outlook

  8. Annual gas production replacement in the Gulf Coast Area, vintiged by year of completion, 1970-97. After Potential Gas Committee 1998, data from PI/Dwight’s. Natural Gas Production Exhibits Significant Decline Rates Source: Advanced Resource International

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

  10. U.S. Gas Production Is Expected to Increase in 2003 and Taper in 2004 Sources: EIA, Short-Term Energy Outlook, October 2003

  11. 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, October 2003

  12. Natural Gas Import Sources LNG Imports: 2002: 229 Bcf 2003: 540 Bcf 2004: 640 Bcf Sources: History: EIA; Projections: Short-Term Energy Outlook October, 2003.

  13. Natural Gas Storage

  14. 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.

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

  16. Natural Gas in Storage Entering Heating SeasonWill Be Within the Range of the Past Five Years Projection: 3,086 Bcf Refill Volumes Working Gas in Storage (billion cubic feet) Stocks at end of March Storage Stocks as of End of October Source: EIA data (1993-2002) and Short-Term Energy Outlook projection, October 2003 (2003).

  17. Natural Gas Demand Outlook

  18. Monthly Consumption, Production and Net Imports Consumption Net Imports Production Projection Source: EIA, Short-Term Energy Outlook, October 2003

  19. Total Natural Gas Demand Is Expected to Be Lower Than 2002 12% 90 History Projections 10% 80 8% 70 6% 60 Billion Cubic Feet per Day 4% 50 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, October 2003.14

  20. Natural Gas Market Outlook

  21. Projections Natural Gas Spot Prices Are Expected to Range Between $4.30-$4.90 This Winter (Base Case and 95% Confidence Interval*) 10.0 9.0 Average Spot Price: about $5.30 /Mcf in 2003 about $4.35 /Mcf in 2004 8.0 7.0 6.0 Dollars per Thousand Cubic Feet 5.0 4.0 3.0 2.0 1.0 0.0 Jul-02 Jul-03 Jul-04 Jul-01 Nov-04 Nov-02 Nov-03 Jan-03 Sep-03 Sep-04 Sep-02 Nov-01 Jan-01 Jan-02 Jan-04 Sep-01 Mar-02 Mar-03 Mar-01 Mar-04 May-03 May-02 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, October 2003.

  22. Illustrative Supply and Demand Curves More Inelastic Demand More Elastic Demand 20 S D1 D3 S D4 18 D2 16 14 12 wellhead price 10 D1 D3 8 D2 D4 6 4 2 0 80 82 83 85 87 89 90 92 94 96 97 99 percent supply utilization rate

  23. Lower-48 States Effective Capacity Utilization and Gas Price (1987-2001)

  24. Kansas Seasonal Natural Gas Load Patterns By Sector (MMcfd) Residential Commercial Industrial Electric Power Source: EIA.

  25. Natural Gas Market Impacts

  26. Household Winter Heating Fuel Summary Base case demand lower; expenditure changes mixed. Notes: Consumption based on typical per household use for the regions noted. Sources: History: EIA; Projections: Short-Term Energy Outlook October, 2003.

  27. Heating Demand Indicators:Probability Ranges for U.S. Degree-Days* This Winter 1200 1000 800 Heating Degree-Days 600 Normal 400 Upper Lower 200 2002-2003 Winter 0 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 Winter weather was colder than normal last year. *Gas-weighted heating degree-days Sources: History: EIA; Projections: Short-Term Energy Outlook, October 2003.

  28. Household Winter Heating Fuel Summary Winter Weather Scenarios: Warm (Mild), Normal (Base) and Cold (Severe) Cases - Midwest Severe weather = +16% to +19% cost increase for heating Notes: Consumption based on typical per household use for the regions noted. Sources: History: EIA; Projections: Short-Term Energy Outlook October, 2003.

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

  30. www.eia.doe.gov

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