1. Natural Gas Markets and EIA’s Information Program NARUC Winter Conference Gas Subcommittee Meeting March 2000 Barbara Mariner-Volpe, barbara.marinervolpe@eia.doe.gov Energy Information Administration

2. Presentation Coverage n n Gas Market Trends n n Gas Market Outlook n n Price Volatility n n Interaction Between Natural Gas/Fuel Oil Markets: Winter 2000 n n Redesign of EIA’s Information Program n n Other Issues on EIA’s Agenda

3. In 1999 the Gas Market Saw Higher Prices and Little Change in Consumption n n Wellhead prices: 25% - 43% higher in 1999 than in 1998, since August n n Production: stable but reserve additions < production in 1998 n n Imports: 13% increase between ‘98 and ‘99 (3.4 Tcf) n n Storage: 93% full at beginning of heating season n n Consumption: little change between ‘98 and ‘99 n n Pipeline expansions: deliverability increased 5.6 Bcf/d n n Changes in retail markets

4. Consumer Prices Declined Substantially From 1980’s Peak Prices

5. Wellhead Prices Show Seasonal Variability in Some Years

6. 1998 Gas Reserve Additions Did Not Replace Production For The First Time in 5 Years

7. The Gap Between Crude Prices and Gas Prices Widened During Winter 1999/2000

8. Temperatures in Four Cities During Winter ’98/’99 and ’99/’00

9. In the Past Three Years, Working Gas in Storage Has Fallen Within or Exceeded the Expected Inventory Range 500 1,000 1,500 2, 000 2,500 3,000 3,500 October November December January February March April May June July August September Bilion Cubic Feet 1996-97 1997-98 1998-99 1999-2000 Expected Range Short-Term Projections

10. End-of-heating Season Stocks Are Approaching the Low End of the Expected Range

11. Average Pipeline Utilization Varied in 1998

12. 33 Pipeline Development Projects Completed in 1999 Added 5.6 Bcf/d to National Deliverability Western Central Southwest 8 Projects - 1,915 Mmcf/d Midwest Southeast Northeast 3 Projects - 319 Mmcf/d5 Projects - 258 Mmcf/d9 Projects - 1,080 Mmcf/d 6 Projects - 1,412 Mmcf/d 3 Projects - 829 Mmcf/d

13. Except for 1994-96, the amount of added capacity each year has been above 4 Bcf/d Source:EIA, Natural Gas Proposed Pipeline Construction Database Additions to Capacity (Announced and/or Approved Projects)

14. Northeast 25 Projects - 3.5 Bcf/d Southeast 13 Projects - 3.9 Bcf/d Midwest 17 Projects - 7.7 Bcf/d Southwest 9 Projects - 2.8 Bcf/d Western 9 Projects - 1.2 Bcf/d Central 12 Projects - 3.2 Bcf/d Proposed natural gas pipeline expansions 2000-2002 (85 Projects, 22.3 Bcf/d)

15. 19961997199819992000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 552 1,397 (Preliminary) 2,124 5,176 Millions of Dollars Proposed (Estimated) Completed 2,380 Expenditures for pipeline development/expansions could jump to over $5 billion in 2000

16. Most of the proposed interregional expansions reflect growing Canadian penetration of the Midwest and Northeast MidwestWesternNortheastSoutheastCentralSouthwestCanadaMexico -40,000 -30,000 -20,000 -10,000 0 10,000 20,000 Net 1999 Capacity Proposed Additions Through 2002 Million Cubic Feet per Day

17. Status of Retail Unbundling in the US as of February 2000

18. Total Firm Capacity Under Contract Has Generally Increased Each Quarter 0 20 40 60 80 100 120 Jul- 96 Jan- 97 Jul- 97 Jan- 98 Jul- 98 Jan- 99 Jul- 99 Long-TermShort-term 199619971998 1999 90 93 96 93 96 95 97 104 95 97 99 102 105 Apr JulOctJan Capacity (TBtu/d) 0 20 40 60 80 100 120 Note: Data are for 60 interstate pipeline companies.

19. Marketers Have Increased Their Share of the Transportation Market July 1, 1999 Electric Utilities 4% Marketers 27% LDCs 52% Industrials 5% Pipeline Companies 7% Others 5% Total Firm Capacity is 97 trillion Btu per day. July 1, 1997 Others 3% Pipeline Companies 7% Industrials 5% LDCs 59% Marketers 22% Electric Utilities 4% Total Firm Capacity is 93 trillion Btu per day.

20. Marketers Have Increased Their Capacity Commitments, LDCs and Electric Utilities Have Decreased

21. Average Contract Length for Contracts With Terms of 3 Years or More, by Year Contract Start Year, 1994 - 1999 11.0 10.1 8.0 9.5 7.8 7.6 0 2 4 6 8 10 12 199419951996199719981999 Contract Start Year Average Contract Length (Years) Note: Data are for a sample of 60 interstate pipeline companies.

22. Firm Transportation Capacity by Year for Contract Expiration, 1999 - 2025, as of July 1, 1999 Note: Data are for 60 interstate pipeline companies. Data for 1999 are for the last 6 months. Short term Long term 0 2 4 6 8 10 12 14 16 19992001200320052007200920112013201520172019202120232025+ Trillion Btu per Day

23. Regional Exposure to Firm Capacity Contract Expirations, 1999-2025, as of July 1, 1999 Regional Exposure to Firm Capacity Contract Expirations, 1999-2025, as of July 1, 1999 Northeast Midwest Central West Southwest Southeast Trillion Btu per Day 2000-2003 2004-2008 2009-2025 1999 2.1 1.5 1.8 5.6 2.7 8.4 9.8 11.8 0.6 4.6 1.1 3.1 0.7 0.9 0.1 3.8 3.1 7.8 3.5 1.4 3.4 4.6 2.1 12.3

24. Natural Gas Market Outlook n n Short-Term (Through 2001) – –Wellhead prices average $2.48 per Mcf in 2000 (March STEO, $2.57 in 2001) compared to last year’s average price of $2.09 – –Industrial and electric utility growth continue but slows n n Long Term (through 2020) – –Continued optimism about market growth (32 Tcf in 2020) – –Increasing wellhead prices to $2.81 per Mcf (98$) in 2020 – –Declining margins/prices to small customers – –Imports increase to 5.1 Tcf in 2020 – –Rising prices and lower drilling costs increase reserve additions and production

25. Average Monthly Wellhead Price Nominal Dollars 1999 Dollars January 1980 - January 2000

26. Weather Economic/business conditions Stock levels Pipeline capacity Operational difficulties Lack of timely, reliable information Affects Supply Affects Demand 4 4 4 4 4 4 4 4 What Are The Main Drivers Of Short-term Price Volatility?

27. High Prices Do Not Always Coincide With High Volatility Monthly Variations in Daily Prices (Volatility Index) Wholesale gas price in Henry, LA

28. Winter 1999/2000: Fuel Oil and Gas Market Developments n n New England heating oil prices increased $0.78 per gallon (to $1.97) between 1/17 and 2/7 n n Factors that led to the surge – –increases in crude oil prices – –cold weather – –low fuel oil stocks – –refinery outages – –transportation problems – –natural gas interruptible load switching to distillate n n EIA is undertaking 3 studies (with DOE Policy Office) on fuel diversity and natural gas interruptible contracts

29. Low Distillate Stocks Set Stage for Price Volatility U.S. Distillate End-of-Month Stocks

30. Regional Residential Heating Oil Prices

31. Retail Diesel Fuel Oil Prices

32. Spot Distillate & Crude Oil Prices (Prices through March 3, 2000)

33. Recovery May Require Holding Stocks Level in February and March

34. Interstate Pipeline Companies Serving the Northeast

35. Next Generation*Natural Gas (NG) 2 A New Comprehensive Information Program at EIA n n Progress to Date: – –Information Requirements Report – –Distribution Charges collected starting in Jan. 2000 – –Residential and Commercial: developed respondent strategies n n Plans for 2000: – –Industrial: l l Pilot test of consumer survey (Census Bureau) l l Assess results, costs – –Residential/Commercial (supplier surveys): l l Develop survey instrument l l Initiate data collection in Jan. 2001 l l Components of price: commodity, distribution charges, and taxes – –Production Data: Determine options and feasibility

36. Timeline for (NG) 2 Development

38. Divergence of Physical and Financial Information Coverage 0 20 40 60 80 100 1984198719901993199619992002 Price Coverage (Percent) ResidentialCommercialIndustrial Restructuring History Projections

39. EIA Collection of Residential Quantity and Price Data Will Erode As Retail Markets Unbundle Note: Data coverage in the West and Southwest Regions (not shown) remains at 99 percent or higher.

40. Challenges for (NG) 2 n n Maximize utility/accessibility/timeliness n n Minimize respondent burden and information costs – –Tap alternative sources of information – –Evaluate alternatives e.g. estimation strategies n n Response encouragement – –Reporting of prices by marketers and billing companies could be key to the success of this effort n n Ongoing changes in the industry

41. DOE EMERCENCY RESPONSE FUNCTIONS n n Agency-Wide: Office of Emergency Operations, Energy Information Administration, Fossil Energy, Policy, Energy Efficiency & Renewable Energy, Power Marketing Administrations, Office of Critical Infrastructure Protection n n Coordinate diverse emergency response n n Assess emergency and pre-emergency conditions n n Rapid deployment of technical experts n n Industry outreach n n Liaison with other departmental elements, federal, tribal, state & local agencies n n 2000 Hot Topics: electrical supplies in New England and the Midwest, Petroleum Supplies, Hurricanes, Critical Infrastructure Protection

42. EIA’s Natural Gas Agenda for 2000 n n (NG) 2 - program redesign n n Multiple studies assessing natural gas/fuel oil market n n Ongoing efforts in transportation, storage markets, retail restructuring n n Critical Infrastructure Protection n n Key Products: Natural Gas Monthly, Natural Gas Annual, Weekly Market Assessment, market studies, Issues and Trends (2001)