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Outlook on Natural Gas and LNG

Outlook on Natural Gas and LNG. Massachusetts Electric Restructuring Roundtable November 19, 2004 Richard Levitan Levitan & Associates, Inc. rll@levitan.com. Fuel Diversity in New England. Recent build-out ~10,700 MW Gas-fired generation (% Total NE GWh) 1999: 16% 2003: 41% 2010: 49%.

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Outlook on Natural Gas and LNG

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  1. Outlook on Natural Gas and LNG Massachusetts Electric Restructuring Roundtable November 19, 2004 Richard Levitan Levitan & Associates, Inc. rll@levitan.com

  2. Fuel Diversity in New England • Recent build-out ~10,700 MW • Gas-fired generation (% Total NE GWh) • 1999: 16% • 2003: 41% • 2010: 49% Massachusetts Electric Restructuring Roundtable

  3. 2002 Study: Gas-fired Generation (2004/5) 4000 3500 3000 2500 MW 2000 1500 1000 500 0 Algonquin Iroquois M&N PNGTS Tennessee Massachusetts Electric Restructuring Roundtable

  4. Atlantic Mid- Canada Continent Other 1.8 43.1 26.5 Gulf Coast 64.3 Rocky Mountains 55.5 WCSB 56.7 North American Natural Gas Supply Resource Base Total: 1,789 Tcf Reserves Total: 247.9 Tcf Other 588.1 U.S. Coalbed Methane 169 Reserves 247.9 Mid-Continent 117 Rocky Mountains 175 Atlantic Canada Gulf Coast WCSB (Scotian Shelf) 293 179 20 Sources: EIA, CAPP, Potential Gas Committee, NEB Massachusetts Electric Restructuring Roundtable

  5. Gas Sources and Supplies • Large resource base in North America (1,789 Tcf) • Focus on converting resources to reserves and production • Gulf Coast + U.S. mid-continent + WCSB ~ 75% of North American production • Traditional producing basins experiencing depletion effects • Natural decline in reservoir/field production • Most fields are facing an onslaught of accelerated depletion • “Treadmill” effect • No more “low hanging fruit” Massachusetts Electric Restructuring Roundtable

  6. Maturation of Existing Production Basins Running hard to maintain production levels • Gulf Coast • Onshore and shallow water production flat to declining • Western Canada (WCSB) • Declining production from shallow wells in the east • Growth from deeper, more expensive wells • Atlantic Canada • Long-term potential • Recent reassessments Massachusetts Electric Restructuring Roundtable

  7. Development/Exploration Supply Drilling v. Production 25000 54 53 20000 52 51 15000 50 # of Wells Drilled Bcf/d 10000 49 48 5000 47 0 46 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Massachusetts Electric Restructuring Roundtable Source: EIA

  8. U.S. Natural Gas Production History Indicates 28% 2003 Decline Rate Massachusetts Electric Restructuring Roundtable Source: IHS Energy, Petroleum Information Corporation, EOG Resources

  9. E&P in Atlantic Canada • Current Scotian Shelf production relatively small • Sable Island: 0.4-0.5 Bcf/d • Gulf Coast: 26.3 Bcf/d • Western Canada: 16.5 Bcf/d • High costs, difficult reservoir conditions • Recent setbacks: • Postponement of Deep Panuke • Downward revisions of proven reserves • Lack of new exploration success Massachusetts Electric Restructuring Roundtable

  10. Sable Island Production Massachusetts Electric Restructuring Roundtable

  11. Henry Hub Historical Prices and Forwards 10.00 9.00 8.00 7.00 2000 2004 (with NYMEX futures) 6.00 5.00 2003 2002 4.00 3.00 2001 2.00 1.00 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Bloomberg Massachusetts Electric Restructuring Roundtable

  12. $1,000 $800 $600 $400 $200 $/MWh $0 -$200 -$400 -$600 01/12/04 01/13/04 01/14/04 01/15/04 01/16/04 01/17/04 01/18/04 01/19/04 Day Ahead Real Time Spark Spreads During New England Cold Snap Source: ISO-NE Massachusetts Electric Restructuring Roundtable

  13. The LNG Supply Challenge Source: TransCanada Massachusetts Electric Restructuring Roundtable

  14. U.S. LNG Imports by Source Country, 1992-2003 Source: EIA Massachusetts Electric Restructuring Roundtable

  15. Quarterly LNG Deliveries Source: EIA, U.S. Natural Gas Imports and Exports: Issues and Trends 2003 Massachusetts Electric Restructuring Roundtable

  16. Major LNG Trade Movements, 2002 (Bcf) Source: EIA, The Global Liquefied Natural Gas Market: Status and Outlook Massachusetts Electric Restructuring Roundtable

  17. Atlantic Basin Liquefaction Capacity, October 2003 Source: EIA, The Global Liquefied Natural Gas Market: Status and Outlook Massachusetts Electric Restructuring Roundtable

  18. Atlantic Basin LNG Market Dynamics • Revitalized Atlantic Basin supply locations • Integration of the LNG supply chain • Crunch on traditional supply has caused a proliferation of new projects • Trend towards commoditization • Global market • Flexibility in charters • Increased array of transportation options Massachusetts Electric Restructuring Roundtable

  19. Interstate Pipelines Serving New England Total Deliverability over 4.0 Bcf/d Massachusetts Electric Restructuring Roundtable

  20. LDC LNG Terminals Distrigas LNG KeySpan , Algonquin Tennessee LNG Imports (158.3 Bcf in 2003) New Mystic (272 MMcf/d) Backup for Distrigas Everett New Mystic LNG Terminal (150 MMcf/d) Storage Capacity: 3.5 Bcf Daily Vaporization: 1 Bcf Massachusetts Electric Restructuring Roundtable

  21. Satellite LNG Tanks in the Greater Northeast Everett Import Facility 3.5 Bcf 1.0 Bcf/d Total Vaporization Capability 115 MMcfd - Truck Massachusetts Electric Restructuring Roundtable Source: EIA, GasTran Gas Transportation System, LNG Facilities Database

  22. Proposed LNG Projects Serving the Northeast Massachusetts Electric Restructuring Roundtable

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