Presentation on theme: "Www.woodmac.com Edward M. Kelly Vice President, North American Natural Gas and Power The North American Gas Market for the Winter, 2005 and Beyond - The."— Presentation transcript:
www.woodmac.com Edward M. Kelly Vice President, North American Natural Gas and Power The North American Gas Market for the Winter, 2005 and Beyond - The Struggle for Supply Edward M. Kelly Vice President, North American Natural Gas and Power IPAA Annual Meeting Austin October 26, 2004
www.woodmac.com Page 2 The Natural Gas Market Paradox 2003 - 2005: tBulging Storage Inventories tGrowing Wellhead Supplies tGrowing Imports NATURALLY LEAD TO …...
www.woodmac.com Page 3 The Natural Gas Market Paradox …..NEAR RECORD PRICES
www.woodmac.com Page 4 The Natural Gas Market Paradox 2006 - 2010: tStruggling Supplies tBuilding Demand Pressure NATURALLY LEAD TO …...
www.woodmac.com Page 5 The Natural Gas Market Paradox …..Moderating Prices
www.woodmac.com Page 6 Unravelling the Market Paradox 2004 and 2005: tRecord Oil Prices tStrong Economic Growth tGeopolitical Instability tFinancial Speculation 2006 - 2010 tModerating Oil Price tLevelling Off of Economic Growth tLNG and Mexico Supplies tCanadian Frontier Supplies
www.woodmac.com Page 7 North American Supply: The Worst Fears are Unfounded tUS Supply rebound in 2004 and 2005 driven by Deepwater and Rocky Mountains increases tMaintaining US supply becomes a challenge as Deepwater supplies decline from 2006 tUS support from higher cost unconventional supplies tContinued technology improvement crucial to realizing potential US Unconventional Supplies
www.woodmac.com Page 8 United States Supply (excl. Alaska) tIn the US, an overall flat supply profile through 2010 masks significant regional change tGulf of Mexico, Gulf Coast and Mid-Continent all exhibit marked production decline... t…but offset by strong growth from the Rocky Mountains
www.woodmac.com Page 9 US Unconventional - The New Conventional tIn the US, the threat posed by declining Production from mature basins is partially offset by increasing, higher-cost unconventional supplies tGas production from tight sands and coalbeds shows strong growth
www.woodmac.com Page 10 Rocky Mountains - Key to US Supply Support tFocus area for many companies for a variety of reasons tHighest production growth potential in US Lower 48 - but not without risks tExpect more proactive pipeline development in contrast to boom/bust 1990s
www.woodmac.com Page 11 Rocky Mountains - Unconventional Once Again Key tCBM and tight gas plays will drive production growth in the region
www.woodmac.com Page 12 Canada and Mexico Supply tHolds up despite decline in traditional Alberta supplies tFollowing a rebound in production during 2004 and 2005, production flattens as increased activity is only sufficient to offset declines in existing production tCBM and development of deeper gas prospects in north and west of Basin plus British Columbia tMexican supply is an important wild card tWithout change in constitution and limited success on the MSC program, gas to market is expected to reach around 3.8 bcfd in 2010 tThis supply growth slightly outpaces demand growth after 2005 tBy 2010, LNG imports of 900 mmcfd (main grid) lead to exports to US of more than 500 mmcfd
www.woodmac.com Page 13 LNG & Arctic Projects - will not materialize quickly, and will lag demand pressure, not relieve it. Any phase of price weakness likely transitory. tMackenzie Delta supplies are expected to connect to the Alberta gas grid in 2009, building to flows of 800 mmcfd by 2010. This date may slip. tBy 2005, summer LNG deliveries are constrained by available regas capacity. tThe first greenfield US LNG regas facilities have been expected to come online in 2007, but for this to occur construction must begin soon. One Gulf Coast facility and one Baja facility could begin importing LNG that year. tLNG regas capacity and liquefaction capacity grow in step, with import volumes increasing to 6.1 bcfd in 2010 tAlaskan supplies could still reach the North American gas grid in 2014, but that date is now slipping, and delays could push in-service back years.
www.woodmac.com Page 14 Domestic Supply is now Stable and Imports are Up tDomestic supply has stabilized tHigh rig counts took hold last year and are providing some support tSeven new deepwater fields came online May-July, and Mars production resumed tDevils Tower - oil (& gas) field - onstream May 2004 - due to ramp up to 90 mmcfd by Q1 2005 Ivan Delay tCoulomb - gas field - onstream June 23 2004 - due to ramp up to c.200 mmcfd in Q3 2004 tRed Hawk - gas/cond field - onstream July 19 2004 - due to ramp up to 120 mmcfd by Aug 2004 tMarco Polo - oil (& gas) field - onstream July 2004 - due to ramp up to 60 mmcfd in early 2005 tGlider - oil (& gas) field - onstream July 20 2004 - due to ramp up to 35 mmcfd in aug 2004 tTomahawk and Raptor - gas fields - onstream June 16 2004 Year-over-year change in US Production and Net Imports (bcfd)
www.woodmac.com Page 15 Wood Mackenzie’s WTI Oil Price Outlook: The Market Slowly Stabilizes, but Politics Still Rules Nominal $2004 $ t2003$31.10$31.72 t2004$40.97$39.96 t2005$38.50$37.75 t2006$28.00$26.91 t2007$28.00$26.39 t2008$28.00$25.87 t2009$28.00$25.36 t2010$28.00$24.86
www.woodmac.com Page 16 Winter LNG market looks tight, but in 2005 Growth Resumes tNo major liquefaction projects came online during 2004 tGlobal players are starting to grow into contracted positions tWarm European weather last winter helped support US imports tCargo availability will increase through 2005 as new Atlantic Basin Projects come online. Net LNG Imports
www.woodmac.com Page 17 A Constrained Market Forecast Features New Assumptions tHigher Withdrawal Season Storage Expectations tCautious early season storage withdrawals tEarly colder than normal weather, or forecasts will push gas prices up toward distillate fuel oil tPotential for Feb, Mar price weakness given expected inventory minimum of near 1,200 Bcf tWide potential range and high volatility in Feb and Mar prices tProduction, LNG increase support strong 2005 injections Storage Inventories
www.woodmac.com Page 18 Henry Hub Spot Price Outlook
www.woodmac.com Page 19 Source: Wood Mackenzie - Global LNG Online Service NA LNG Regas terminals and Proposals
www.woodmac.com Page 20 * As taken from Wood Mackenzie’s revised Multi-Client study: “Falling Short: The Growing Challenge to Supply the North American Natural Gas Market through 2010” Forecasted imports tLNG into North America will not ä“Set the US Gas Price äProvide a ceiling for US gas prices äFlood the US gas price äSingle handily address the US gas supply shortfall tLNG into North America will äBe “somewhat” responsive to the US market price - depends on spot cargoes available äProvide a critical increment to US supply äDampen basis in specific areas close to landing points äOffer a midstream opportunity