SHORT - TERMSHORT - TERMNATURAL GAS OUTLOOKNATURAL GAS OUTLOOK

National Association ofState Energy Officials

State Heating Oil and Propane ConferenceAugust 7, 2006

Barbara Mariner-Volpe,Energy Information Administration (EIA)Barbara.MarinerVolpe@eia.doe.gov

www.eia.doe.gov

FACTORS AFFECTING GAS FACTORS AFFECTING GAS MARKET OUTLOOKMARKET OUTLOOK

• Returns to drilling; Recovery from hurricanes • Weather• Economic Growth• Demand robustness/destruction/switching• International markets

pipeline and lng supplies

world oil market/prices

Wellhead Natural Gas Prices, 1990-2007

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Year

Do

llars

per

Th

ou

san

d C

ub

ic F

eet

History

Proj.

Source: EIA Short-Term Energy Outlook, July 2006

Wellhead Natural Gas Prices, 1990-2007

$0

$2

$4

$6

$8

$10

$12

$14

Ja

n-9

9

Au

g-9

9

Ma

r-0

0

No

v-0

0

Ma

y-0

1

De

c-0

1

Ju

l-0

2

Fe

b-0

3

Se

p-0

3

Ma

y-0

4

De

c-0

4

Ju

l-0

5

Ma

r-0

6

Pri

ce (

Do

llar

s p

er M

MB

tu)

0

200

400

600

800

1000

1200

1400

Nu

mb

er o

f R

igs

Number of Rigs Drillingfor Natural Gas

Weekly Henry Hub Spot

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

Gas Prices Have Led to Gas Prices Have Led to Record-High Drilling Rates Record-High Drilling Rates

Hurricanes Katrina and RitaHurricanes Katrina and RitaRelative to Offshore Oil and Natural Gas Relative to Offshore Oil and Natural Gas

Production PlatformsProduction Platforms

Source: Government Accounting Office

Production was reduced 800 Bcf as a result Production was reduced 800 Bcf as a result of 2005 Hurricanesof 2005 Hurricanes

Source: MMS; Ocean Warwick

Production was reduced 800 Bcf as

a result of 2005 Hurricanes

Contiguous U.S. LNG Import TerminalsContiguous U.S. LNG Import Terminals

Everett Import Facility - Massachusetts3.5 Billion Cubic Feet Storage Capacity715 Million Cubic Feet per day Vapor.100 Million Cubic Feet per day by Truck

Lake Charles LNG Import Facility - Louisiana9 Billion Cubic Feet Capacity2.1 Billion Cubic Feet per day Vaporization(Expansion complete)

Elba Island LNG Import Facility - Georgia7.3 Billion Cubic Feet Storage Capacity1.2 Billion Cubic Feet per day Vaporization(Expansion completed)

Cove Point LNG Facility - Maryland7.8 Billion Cubic Feet Storage Capacity1 Billion Cubic Feet per day Vaporization(Expansion underway)

Excelerate Energy Bridge No Storage Capacity500 Million Cubic Feet per day

LNG import facilities in the continental LNG import facilities in the continental United States had spare capacity United States had spare capacity

through much of 2005 and early 2006through much of 2005 and early 2006– The spot market is still a small part of the

market. – Low utilization rates at lower 48 facilities. – The expected volumes under long-term

contracts have not materialized.– New LNG production facilities in Nigeria and

Trinidad and Tobago have taken longer than expected.

– The new Excelerate Energy Bridge has delivered only two cargoes of LNG to date.

Production Recovering From Hurricane Production Recovering From Hurricane Loss in 2005Loss in 2005

17.818.1

18.818.6

18.8 18.819.0

18.8

19.2

19.6

18.919.1

18.818.6

18.418.2

15

16

17

18

19

20

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

TC

F

Sources: EIA, Short-Term Energy Outlook, July 2006

Projections

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Bill

ion

Cu

bic

Fee

t

Pipeline LNG

Projection

Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.

Imports are Expected to Increase in 2007Imports are Expected to Increase in 2007

LNG Imports:2005: 630 Bcf2006: 760 Bcf2007: 1000 Bcf

Imports are Expected to Increase in 2007

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jan-04Apr-0

4Jul-04

Oct-04

Jan-05Apr-0

5Jul-05

Oct-05

Jan-06Apr-0

6Jul-06

Oct-06

Jan-07Apr-0

7Jul-07

Oct-07

Natural Gas Stocks Are Well Above Natural Gas Stocks Are Well Above Five-Year AverageFive-Year Average

Source: Short-Term Energy Outlook, July 2006

Projection5-Year Range

The blue area represents the minimum and maximum range of historical gas storage levels during the years 2000-2004.

The red line represents actual storage from Jan 2004 to May 2006 and projected storage from May 2006 through December 2007

0

2

4

6

8

10

12

14

16

18

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Forecast

Dollars per

thousand cubic feet

Natural Gas Henry Hub Spot PricesNatural Gas Henry Hub Spot Prices(Base Case and 95% Confidence Interval*)(Base Case and 95% Confidence Interval*)

*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: Natural Gas Week; Projections: Short-Term Energy Outlook, July 2006.

Natural Gas Henry Hub Spot Prices(Base Case and 95%

Confidence Interval*)

Natural Gas Spot &Natural Gas Spot &West Texas Intermediate Crude Oil PricesWest Texas Intermediate Crude Oil Prices

Sources: EIA Short Term Energy Outlook Jnly2006

History Forecast

WTI Crude Oil

Henry HubNatural Gas

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

2005 2006 2007

Residential Commercial Industrial Electric Power* Total

ProjectionsHistory

Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.

* Gas used for electricity generation

AFTER DECREASING IN 2005 and 2006, GAS CONSUMPTION AFTER DECREASING IN 2005 and 2006, GAS CONSUMPTION IS EXPECTED TO INCREASE IN 2007IS EXPECTED TO INCREASE IN 2007

Annual Percent Change in

Total Natural Gas Demand

2005 -2.23%

2006 -1.64%

2007 4.22%Ch

ang

e in

Nat

ura

l G

as C

on

sum

pti

on

(tri

llio

n c

ub

ic f

eet)

AFTER DECREASING IN

2005 and 2006, GAS CONSUMPTION IS

EXPECTED TO INCREASE IN 2007

Residential Sector Expenditures During The Heating Season, 2001-2007 (Billion Dollars)

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

History Forecast

Natural Gas Prices to Electric Generators Natural Gas Prices to Electric Generators Fell in 2006 Relative to Oil PricesFell in 2006 Relative to Oil Prices

$0

$2

$4

$6

$8

$10

$12

$14

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

Se

p-0

4

Ja

n-0

5

Ma

y-0

5

Se

p-0

5

Ja

n-0

6

Ma

y-0

6

Se

p-0

6

Ja

n-0

7

Ma

y-0

7

Se

p-0

7

Do

llar

s p

er M

illi

on

Btu

Source: Short-Term Energy Outlook, July 2006.

The decline in natural gas prices reflects some easing of market tightness while petroleum product prices have been high because of global market conditions.

Delivered price to electric generators for residual fuel oil and natural gas

History Projection

Residual Fuel Oil Price

Natural Gas Price

To Sum Up:

EIA expects no significant relief in gas market tightness through 2007.

To Sum Up:

Recent Natural Gas Reports

www.eia.doe.gov

-Natural Gas Processing: The Crucial Link Between Natural Gas Production and Its Transportation To Market

-Overview of the Federal Offshore Royalty Relief Program

- Impact of the 2005 Hurricanes on the Natural Gas Industry in the Gulf of Mexico Region

Watch for upcoming reports on storage and pipeline infrastructure!

Recent Natural Gas Reports