Natural Gas Market:

1
Natural Gas Market Status and Outlook

Illinois Commerce Commission January 24, 2001
Barbara Mariner-Volpe Energy Information
Administration
2
Current Natural Gas Spot Prices Well Above the
Recent Price Range
3
Average Wellhead Prices Currently Exceed the
Highest Level Over the Past 20 Years
4
As of Jan. 12, 2001, Storage Stocks are Down
About 30 Percent from the 5 Year Average
5
Why Have Natural Gas Prices Surged in 2000?

• Supply Tightness
• Storage Stocks - lower than average
• Consumption increases
• Oil Price Increases
• Market Perceptions

6
Rigs Drilling Gas Wells Are At All-Time Highs
Drilling Rigs 1/2/98 - 1/19/01
7
Outlook for Winter 2000/2001

• Prices - significantly higher than last winter.
  
• - begin to moderate in second quarter 2001
• Current storage levels are low and may be very
  tight if gas demand surges beyond expected levels
• Record drilling levels will start to ease supply
  tightness but timing is an issue
• With normal weather, consumption will be higher
  than last winter
• Barring extreme weather, pipeline capacity will
  be adequate to satisfy firm load requirements.

8
Low Natural Gas Stocks Expected at the End of the
Current Heating Season
9
Outlook for NEXT Winter 2001/2002

• Average wellhead prices expected to be lower than
  current levels.
  
• Production in 2001 will increase 5.4 from 2000
  level. (Additional 2.5 growth in 2002)
• Increased imports from Canada
• Winter consumption close to 2000/2001 level
• (Annual growth 2.9 in 2001 and 2.7 in 2002)

10
Natural Gas Spot Prices Base Case and 95
Confidence Interval
Sources History Natural Gas Week Projections
Short-Term Energy Outlook, January 2001.
11
Consumers Will Pay 45 percent more per Mcf and
Total Heating Bills will be about 75 percent
higher than Last Winter
12
Storage Stocks are Below the Average Five-Year
Level (Percentage Difference from Previous
5-Year Average)
Sources History Natural Gas Week Projections
Short-Term Energy Outlook, January 2001.
13
Natural Gas Market Outlook For 2020

• Market growth (32 Tcf in 2015, 34 Tcf in 2020)
• After the 2000/2001 surge, prices will drop, then
  increase slowly to about 3.10 (99 dollars/mcf)
  in 2020
• Imports increase to about 5 Tcf in 2020
• Rising prices and lower drilling costs increase
  reserve additions and production
• Technology improvements limit cost increases

14
U.S. Natural Gas Consumption, Production, and
Imports, 1970 - 2020 (trillion cubic feet)
Consumption
Net Imports
Production
History
Projections
15
U.S. Natural Gas Consumption by Sector,
1990-2020 (trillion cubic feet)
History
Projections
Electricity Generation
Industrial
Residential
Commercial
CNG Vehicles
16
In Summary The Gas Industry is Dynamic and
Faces Opportunities and Challenges...

• Prices will moderate in 2001
• Continued volatility of prices
• Significant market growth in the long-term
• Domestic production and imports will increase
  significantly in the future
• Natural gas is an abundant resource