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Presentation on theme: " 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:

1 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

2 Page 2 The Natural Gas Market Paradox 2003 - 2005: tBulging Storage Inventories tGrowing Wellhead Supplies tGrowing Imports NATURALLY LEAD TO …...

3 Page 3 The Natural Gas Market Paradox …..NEAR RECORD PRICES

4 Page 4 The Natural Gas Market Paradox 2006 - 2010: tStruggling Supplies tBuilding Demand Pressure NATURALLY LEAD TO …...

5 Page 5 The Natural Gas Market Paradox …..Moderating Prices

6 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

7 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

8 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

9 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

10 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

11 Page 11 Rocky Mountains - Unconventional Once Again Key tCBM and tight gas plays will drive production growth in the region

12 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

13 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.

14 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)

15 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

16 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

17 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

18 Page 18 Henry Hub Spot Price Outlook

19 Page 19 Source: Wood Mackenzie - Global LNG Online Service NA LNG Regas terminals and Proposals

20 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

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23 Page 23 The High Plateau: North America Sustains New Heights Henry Hub $2004 dollars 2003 - $5.59 2004 - $5.98 2005 - $5.47 2006 - $4.65 2007 - $4.78 2008 - $4.66 2009 - $4.45 2010 - $4.30 tOil price declines tLNG Development tMexico Reversal tMackenzie Delta

24 Page 24 The Gas/Oil Price Relationship— Linkages Continue

25 Page 25 Tokyo Kamiyacho Building, 14th Floor 4-3-20 Toranomon, Minato-ku Tokyo 105-0001, Japan T: +81 3 5414 3836 F: +81 3 5404 3401 Beijing Eagle Run Plaza,Suite 2501 Chaoyang District,Beijing, China T: +86 136 01266757 Sydney Suite 1002, Level 10, 16-20 Barrack Street Sydney, NSW 2000, Australia T: +61 2 9006 7971 F: +61 2 9006 1570 Moscow 3 Smolenskaya Ploschad Moscow, Russia T: +7 095 937 8314 F: +7 095 937 8273 Houston Suite 1000, 5847 San Felipe Houston, TX 77057, USA T: +1 (713) 470 1600 F: +1 (713) 470 1701 London Tower 42, 5th Floor, 25 Old Broad Street London EC2N 1HW, United Kingdom T: +44 (0)20 7877 0649 F: +44 (0)20 7877 0688 Edinburgh Kintore House, 74-77 Queen Street Edinburgh EH2 4NS, United Kingdom T: +44 (0)131 243 4400 F: +44 (0)131 243 4495 Boston 30 Rowes Warf, Suite 2 Boston, MA 02110, USA T: +1 (617) 535 1000 F: +1 (617) 535 1333

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