Presentation on theme: "Global Wealth Management Group"— Presentation transcript:
1 Global Wealth Management Group Natural Gas Pricing and Strategy Forum: IGS Energy The Golf Club of Dublin 5805 Eiterman Road Dublin, OH August 5, 2008Alan LevineTeamLevine1775 Eye Street NWWashington, DC 20006(800)This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This is not a research report and was not prepared by the Morgan Stanley research department. It was prepared by Morgan Stanley sales, trading or other non-research personnel. Past performance is not necessarily a guide to future performance. Please see additional important information and qualifications at the end of this material.
2 Overview Tension between Production Bears Consumption Bulls Globalization of Natural Gas PricingNew Considerations in PricingLNG is the Balance WheelCharting the Price
3 Overview of Natural Gas The Current Situation and Expectations Prices in 2008 have thus far traded a $6.84 range. The low seen on December 27, 2007 was $6.838 The top came on July 2, 2008 at $ (+100.3%) Prices fell to $8.81 in 20 trading sessions (-35.6%) Concerns early in the year that lower LNG imports would support price have been frustrated by an improved storage outlook and softer crude oil prices.Sustained lower 48 heat and the threat of potential hurricane activity have not supported prices as had been anticipated. Foreign natural gas prices exceed domestic prices offering little hope of supplemental supply.Gas/Crude relative value is at an extreme, potentially supporting price.Supply Situation 2008 production is well above expectations (+3 %.) Canadian production decline should abate if Year-on-Year US storage deficit expands.HDDs were 2% above normal in first four months of 2008, (last year 3% below.)LNG imports about 50% below last year (1-1.5 Bcf/d.) Foreign (Japan, Spain) demand draining supplies ordinarily destined for US.When available, spot cargoes have found more welcome in markets with a willingness to pay oil-indexed prices (e.g. Argentina.)
4 Overview of Natural Gas The Current Situation and Expectations continued 2009 supply growth continues. Onshore will see largest gains. Accelerated drilling and multiple new resource plays. Will GoM declines accelerate?Weather volatility still important, especially with greater reliance on electricity a national goal. Alternative fuels (resid/coal) will matter in periods of under/over supply. At current coal price, the natural gas floor is around $7/mmbtu, up from $4/mmbtu six months ago.New project additions to LNG to be around 7.1 bcf/d.
5 Daily, continuous NYMEX Natural Gas Futures Source:
16 Globalization of Natural Gas Pricing Geopolitics and EnergyLNG is the Balance Wheel
17 Geopolitics and Energy Geopolitics is the interaction among politics, geography, demography and economics of nations.Relates to national security and even national survivalFragility of international energy marketsIraqThe Middle EastThe former Soviet Union
18 Oil and Natural Gas Hotspots Factsheet Source: EIA
19 Regime Changes Have Rendered Production Lower Source: Morgan Stanley Research
20 Iraq’s Petroleum Situation 1. Unresolved Hydrocarbon Policy▫ 70% of Iraqi Economy▫ Impacts Sectarian Violence▫ Regional Autonomy2. Unresolved Control of Oil Fields▫ Revenue Sharing▫ Dispute Resolution3. Diminishing Production Expectations▫ Potential to grow to 3.5 million barrels daily in five years▫ Well down from expectations of 7 million in ten years offered in November, 2006
21 Iraq’s Petroleum Situation con’t 4. Independent Undertakings to Develop Oil Without Central Government▫ Kurdish Iraq▫ Shiite militias in southern oil fields5. Trade in Illicit Petroleum▫ Funds insurgent activity▫ 60 million barrels of crude oil missing in 2005 according to Iraq’s oil ministry
22 Elsewhere In The Region… 1. Saudi Arabia has an aggressive policy▫ Increase spare drilling capacity to 3 million daily barrels by 2011▫ Spare capacity now 2 million barrels per day2. Current tight demand limits Saudi ability to influence price3. Could use oil availability to assert regional pre-eminence and offset Iranian exports
23 And in the former Soviet Union… Belarus Natural GasUkraine Natural GasYukos re-acquisition
24 Threats to Stability Transit Choke Points Source: Energy Information Administration (EIA)
25 LNG is the Balance Wheel ImportsLNG Infrastructure