Natural Gas OutlookNatural Gas OutlookNational Association of State Energy Officials

State Heating Oil and Propane Conference

August 30, 2004

William TrapmannEnergy Information Administration (EIA)William.Trapmann@eia.doe.gov

www.eia.doe.gov

Presentation CoveragePresentation Coverage

• Natural Gas Prices

• Production Trends

• Natural Gas Imports

• Storage

• Short-Term Market Outlook

Natural Gas PricesNatural Gas Prices

Natural Gas Prices Generally Track Natural Gas Prices Generally Track Oil PricesOil 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

Why Are Current Natural Gas Prices High?

• High Petroleum Prices

• Returns to Drilling

• Lags in Bringing New Production to Market

• Net Imports Flat

• Demand

Natural Gas Natural Gas Production TrendsProduction Trends

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 Reserve Additions Exceeded Production for 8 of the Last 9 Yearsfor 8 of the Last 9 Years

85%

108% 108% 107% 104%

83%

118%

152%

131%

118%

88%

0%

20%

40%

60%

80%

100%

120%

140%

160%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Pe

rce

nt

of

U.S

. Ga

s P

rod

uc

tio

n R

ep

lac

ed

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

Pe

rce

nt

To

tal W

ellh

ea

d

Ca

pac

ity

2003

–< 1 Year Old–< 2 Years Old–< 3 Years Old

1993

–< 1 Year Old–< 2 Years Old–< 3 Years Old

$0

$2

$4

$6

$8

$10

$12

$141/

2/98

7/31

/98

2/26

/99

9/24

/99

4/20

/00

11/1

0/00

5/18

/01

11/3

0/01

6/14

/02

12/2

7/02

7/25

/03

2/20

/04

Pri

ce (

Do

llar

s p

er M

MB

tu)

0

200

400

600

800

1000

1200

Nu

mb

er o

f R

igs

Number of Rigs Drillingfor Natural Gas

Weekly Henry Hub Spot Price

Source: Natural Gas Intelligence Weekly Gas Price Index, Baker-Hughes Weekly US Rig Report.

Gas Rigs Tend To Follow Spot Prices Gas Rigs Tend To Follow Spot Prices With A LagWith A Lag

*

*

Rig Growth Continues but Rig Growth Continues but Production Remains FlatProduction Remains Flat

0

200

400

600

800

1000

1200

1991 1993 1995 1997 1999 2001 2003 2005

Nu

mb

er G

as R

ota

ry R

igs

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

20.5

Tri

llio

n C

ub

ic F

eet

Pro

du

ctio

nU.S. Dry Gas Production & Rotary Rigs

Dry Gas Production

Average Annual Rig Count

Sources: EIA, Baker Hughes Gas Rig Counts, Short-Term Energy Outlook, August 2004

Natural Gas ImportsNatural Gas Imports

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1997 1998 1999 2000 2001 2002 2003 2004 2005

Bil

lio

n C

ub

ic F

eet

Pipeline LNG

Projections

Sources: History: EIA; Projections: Short-Term Energy Outlook August, 2004.

LNG Imports:2003: 507 Bcf2004: 690 Bcf2005: 800 Bcf

Pipeline Imports Are Expected to Decline, Pipeline Imports Are Expected to Decline, While LNG Imports IncreaseWhile LNG Imports Increase

LNG Imports at Existing TerminalsLNG Imports at Existing Terminals

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003 2004 2005

Bil

lion

Cu

bic

Fee

t

History Projection

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

There Are Numerous Proposals There Are Numerous Proposals For New LNG Import FacilitiesFor New LNG Import Facilities

Proposed Marine Terminal

Existing Marine Terminal

Sources: Energy Information Administration, U.S. LNG Markets and Uses: June 2004 Update.

Projects shown as of June 2004

Natural Gas StorageNatural Gas Storage

Seasonal Natural Gas Load Patterns Seasonal Natural Gas Load Patterns By Sector (BCF)By Sector (BCF)

0

200

400

600

800

1000

Jan-0

1

Mar

-01

May

-01

Jul-0

1

Sep-0

1

Nov-01

Jan-0

2

Mar

-02

May

-02

Jul-0

2

Sep-0

2

Nov-02

0

200

400

600

800

1000

Jan-0

1

Mar

-01

May

-01

Jul-0

1

Sep-0

1

Nov-01

Jan-0

2

Mar

-02

May

-02

Jul-0

2

Sep-0

2

Nov-02

0

200

400

600

800

1000

Jan-0

1

Mar

-01

May

-01

Jul-0

1

Sep-0

1

Nov-01

Jan-0

2

Mar

-02

May

-02

Jul-0

2

Sep-0

2

Nov-02

Source: EIA.

0

200

400

600

800

1000

Jan-0

1

Mar

-01

May

-01

Jul-0

1

Sep-0

1

Nov-01

Jan-0

2

Mar

-02

May

-02

Jul-0

2

Sep-0

2

Nov-02

Residential

Industrial

Commercial

Electric Power

Underground Natural Gas Storage Facilities Underground Natural Gas Storage Facilities In the Lower 48 StatesIn the Lower 48 States

Natural Gas in Storage Now Exceeds Natural Gas in Storage Now Exceeds The 5-Year AverageThe 5-Year Average

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Aug

-02

Nov

-02

Feb

-03

May

-03

Aug

-03

Nov

-03

Feb

-04

May

-04

Aug

-04

Bil

lio

n C

ub

ic F

eet

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.

Natural Gas in Storage Entering Heating SeasonNatural Gas in Storage Entering Heating SeasonIs Expected to Exceed the Is Expected to Exceed the

Range of the Past Five YearsRange of the Past Five Years

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Wo

rkin

g G

as i

n S

tora

ge

(bil

lio

n c

ub

ic f

eet)

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

U.S. Liquefied Natural Gas FacilitiesU.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.

Storage (with liquefaction)Storage (without liquefaction)

(57)(39)

(12)Other

.

Marine Terminal - Import (4)Marine Terminal - Export (1)

LNG Facilities in the U.S. NortheastLNG Facilities in the U.S. Northeast

Source: Adapted from Energy Information Administration, U.S. LNG Markets and Uses: June 2004 Update, June 2004.

NewWMF

Storage (with liquefaction)

Storage (without liquefaction)

Marine Terminal

Short-Term Price Short-Term Price OutlookOutlook

Short-Term Outlook for Natural GasShort-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

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Ja

n-9

9

Ma

y-9

9

Se

p-9

9

Ja

n-0

0

Ma

y-0

0

Se

p-0

0

Ja

n-0

1

Ma

y-0

1

Se

p-0

1

Ja

n-0

2

Ma

y-0

2

Se

p-0

2

Ja

n-0

3

Ma

y-0

3

Se

p-0

3

Ja

n-0

4

Ma

y-0

4

Do

llars

per

Th

ou

san

d C

ub

ic F

eet

Se

p-0

4

Ja

n-0

5

Ma

y-0

5

Se

p-0

5

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 Natural Gas Spot Prices Are Expected to Average $6.21 This YearAverage $6.21 This Year

(Base Case and 95% Confidence Interval*)(Base Case and 95% Confidence Interval*)

Average Spot Price:

about $6.21 /Mcf in 2004

about $6.60 /Mcf in 2005

$0

$2

$4

$6

$8

$10

$12

$14

$16

Do

lla

rs P

er

Mc

f Residential

Commercial

Industrial

Electric Utilities

Wellhead

U.S. Natural Gas Prices Are Expected to U.S. Natural Gas Prices Are Expected to Trend Upward Through 2005Trend Upward Through 2005

Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2004.

History Outlook

*Gas-weighted heating degree-days

Heating Demand Indicators:Heating Demand Indicators:Probability Ranges for U.S. Degree-Days* Probability Ranges for U.S. Degree-Days*

This WinterThis Winter

Winter weather was warmer than normal last year.

Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2004.

0

200

400

600

800

1000

1200

Oct Nov Dec Jan Feb Mar Apr

He

ati

ng

De

gre

e D

ay

s

Minimum

Maximum

Normal

Winter 2003-2004

Volatility HappensVolatility HappensIllustrative Supply and Demand CurvesIllustrative Supply and Demand Curves

SD1

D2

D1D2

0

80 82 83 85 87 89 90 92 94 96 97 99

percent supply utilization rate

wel

lhea

d p

rice

D1

D2

D3

D4

Pri

ce

Supply Capacity Utilization Rate

Household Winter Heating Fuel SummaryHousehold 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 WinterAverage 2001-2002 2002-2003 2003-2004 2004-2005

1998-2000 Actual Actual Actual Base ForecastNatural Gas (Midwest) Consumption (mcf) 88.8 81.3 95.2 89.9 97.8 Avg. Price ($/mcf) 7.61 7.41 8.40 9.69 10.72 Expenditures ($) 676 602 800 871 1049 Heating Oil (Northeast) Consumption (gals) 673 577 743 728 696 Avg. Price ($/gal) 1.12 1.10 1.34 1.36 1.57 Expenditures ($) 754 635 993 991 1094 Propane (Midwest) Consumption (gals) 877 803 941 888 966 Avg. Price ($/gal) 1.10 1.11 1.20 1.30 1.41 Expenditures ($) 964 888 1125 1156 1361Notes: 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.

www.eia.doe.gov