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Natural Gas Outlook National Association of State Energy Officials State Heating Oil and Propane Conference August 30, 2004 William Trapmann Energy Information Administration (EIA) William.Trapmann@eia.doe.gov www.eia.doe.gov
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Presentation Coverage Natural Gas Prices Production Trends Natural Gas Imports Storage Short-Term Market Outlook
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Natural Gas Prices
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Natural Gas Prices Generally Track Oil Prices NYMEX Natural Gas Futures Near-Month Contract Settlement Price, West Texas Intermediate Crude Oil Spot Price, and Henry Hub Natural Gas Spot Price WTI Spot Price NYMEX Futures Price Henry Hub Spot Price
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Why Are Current Natural Gas Prices High? High Petroleum Prices Returns to Drilling Lags in Bringing New Production to Market Net Imports Flat Demand
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Natural Gas Production Trends
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Source: Energy Information Administration, Advance Summary of U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 2002 Annual Report Reserve Additions Exceeded Production for 8 of the Last 9 Years
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Drilling Increases Are Necessary to Maintain Production Levels …… A Growing Percentage of Production Is from Wells Three Years Old or Less Sources: EIA. 0 10 20 30 40 50 60 Percent Total Wellhead Capacity 2003 –< 1 Year Old –< 2 Years Old –< 3 Years Old 1993 –< 1 Year Old –< 2 Years Old –< 3 Years Old
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Source: Natural Gas Intelligence Weekly Gas Price Index, Baker-Hughes Weekly US Rig Report. Gas Rigs Tend To Follow Spot Prices With A Lag * *
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Rig Growth Continues but Production Remains Flat Sources: EIA, Baker Hughes Gas Rig Counts, Short-Term Energy Outlook, August 2004
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Natural Gas Imports
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Sources: History: EIA; Projections: Short-Term Energy Outlook August, 2004. LNG Imports: 2003: 507 Bcf 2004: 690 Bcf 2005: 800 Bcf Pipeline Imports Are Expected to Decline, While LNG Imports Increase
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LNG Imports at Existing Terminals HistoryProjection Everett, MA Elba Island, GA Cove Point, MD Lake Charles, LA Source: History, Natural Gas Monthly; 2004-2005: Short-Term Energy Outlook, August 2004. Total
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There Are Numerous Proposals For New LNG Import Facilities Sources: Energy Information Administration, U.S. LNG Markets and Uses: June 2004 Update. Projects shown as of June 2004
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Natural Gas Storage
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Seasonal Natural Gas Load Patterns By Sector (BCF) Source: EIA. Residential Industrial Commercial Electric Power
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Underground Natural Gas Storage Facilities In the Lower 48 States
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Natural Gas in Storage Now Exceeds The 5-Year Average Source: Energy Information Administration, Weekly Natural Gas Storage Report, August 12, 2004. Note: Actual working gas stocks denoted by red line; blue lines show the maximum and minimum volumes in 1999-2003.
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Natural Gas in Storage Entering Heating Season Is Expected to Exceed the Range of the Past Five Years Working Gas in Storage (billion cubic feet) Projection: 3,196 Bcf Storage Stocks as of the End of October Source: Historical data: EIA; Projected data: Short-Term Energy Outlook August 2004 Stocks at end of March Refill Volumes
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U.S. Liquefied Natural Gas Facilities Notes: Map excludes the import facility in Puerto Rico. “Other” includes: stranded utilities, vehicular fuel facilities, nitrogen rejection units and other special processing plants. Source: Energy Information Administration, U.S. LNG Markets and Uses: June 2004 Update, June 2004.
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LNG Facilities in the U.S. Northeast Source: Adapted from Energy Information Administration, U.S. LNG Markets and Uses: June 2004 Update, June 2004. New WMF
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Short-Term Price Outlook
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Short-Term Outlook for Natural Gas Continued price pressure –No short-term relief expected Consumption – flat growth in 2004 and 2005 Production – marginal growth through 2005 –New well completions are offset by the production declines for existing wells Net imports – slight increase in 2004 and then decrease in 2005 –Increasing LNG imports are offset by decreasing pipeline imports from Canada
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0.0 2.0 4.0 6.0 8.0 10.0 12.0 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Dollars per Thousand Cubic Feet Sep-04 Jan-05 May-05 Sep-05 Monthly Projections *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, August 2004. Natural Gas Spot Prices Are Expected to Average $6.21 This Year (Base Case and 95% Confidence Interval*) Average Spot Price: about $6.21 /Mcf in 2004 about $6.60 /Mcf in 2005
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U.S. Natural Gas Prices Are Expected to Trend Upward Through 2005 Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2004. HistoryOutlook
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*Gas-weighted heating degree-days Heating Demand Indicators: Probability Ranges for U.S. Degree-Days* This Winter Winter weather was warmer than normal last year. Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2004.
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Volatility Happens Illustrative Supply and Demand Curves S D1D1 D2D2 D1D1 D2D2 0 80 82 83 85 878990 92 94969799 percent supply utilization rate wellhead price D1 D2 D3 D4 Price Supply Capacity Utilization Rate
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Household Winter Heating Fuel Summary Notes: Consumption based on typical per household use for the regions noted. Sources: History: EIA; Projections: Short-Term Energy Outlook August 2004. Illustrative Consumer Prices and Expenditures for Heating Fuels During the Winter Average2001-20022002-20032003-20042004-2005 1998-2000Actual Base Forecast Natural Gas (Midwest) Consumption (mcf)88.881.395.289.997.8 Avg. Price ($/mcf)7.617.418.409.6910.72 Expenditures ($)6766028008711049 Heating Oil (Northeast) Consumption (gals)673577743728696 Avg. Price ($/gal)1.121.101.341.361.57 Expenditures ($)7546359939911094 Propane (Midwest) Consumption (gals)877803941888966 Avg. Price ($/gal)1.101.111.201.301.41 Expenditures ($)964888112511561361 Notes: Consumption based on typical per household use for regions noted. Prices shown are national average delivered-to-household prices. mcf = thousand cubic feet. gal = gallon.
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