Natural Gas Prices and Supplies in the NortheastMidwest Region

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Natural Gas Prices and Supplies in the
Northeast-Midwest Region
April 7, 2003
Guy Caruso Administrator Energy Information
Administration
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Outline

• Background on the natural gas industry and
  markets
• Brief discussion of storage operations
• Recent and current events in natural gas markets
• Overview of EIAs natural gas projections
• Concluding remarks

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U.S. Gas Industry at a Glance
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Transaction Paths for Natural Gas Flows and
Purchases
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Producing basins and regional natural gas flows
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Dry Natural Gas Reserves as of 12/31/01(trillion
cubic feet)
8.8
50.8
Alaska
40.6
24.2
12.4
3.2
West Coast
Northeast
Mid-continent
15.7
Rocky Mountain
27.7
Gulf Coast
Southwest
Offshore
Total U.S. Natural Gas Proved Reserves 183.4 Tcf
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Storage Supplies Help Satisfy Demand Peaks
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Natural Gas Storage Attributes

• Critical supply component during heating season
• Smoothes gas production throughout the year
• Help satisfy sudden shifts in demand and supply
• Supports pipeline operations and hub services

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Natural Gas Storage in the U.S.

• Underground Storage
• Depleted reservoirs in oil and/or gas fields
• Aquifers
• Salt cavern formations (high deliverability)
• Additional Storage
• Liquefied natural gas (LNG) facilities
• Pipeline line pack
• Peaking facilities (LNG and propane)

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Types of Underground Storage
 
 
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Underground Natural Gas Storage Facilities in the
Lower 48 States
Note Aquifers in the Producing Region have been
displayed as depleted oil/gas fields to preserve
data confidentiality.
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Where underground storage is not feasible, LNG
facilities provide peaking service
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Recent Natural Gas Wellhead Prices Have Been
Close To Record Levels
Sources History EIA Projections Short-Term
Energy Outlook, April 2003
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High Natural Gas Prices in Winter 2002-2003

• High crude prices
• Cold temperatures in major gas markets
• Relatively low storage volumes
• Weak production
• Low net imports

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Natural Gas Prices Increased And Were Volatile
During The Past Winter
Note The West Texas Intermediate crude oil
price, in dollars per barrel, is converted to
/MMBtu using a conversion factor of 5.8 MMBtu
per barrel. Source NGI's Daily Gas Price Index
(http//Intelligencepress.com)
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This Winter Was Colder Than Last
Winter(Cumulative Heating Degree Days, Heating
Season 2002-2003)
Source Energy Information Administration,
derived from Heating Degree Day Monitoring,
National Climatic Center.
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Working Gas Stocks Began Strong But Declined With
Large Withdrawals
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Most Production Flows from Wells Not More Than
Three Years Old
Source Energy Information Administration.
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Gas Rigs Tend To Follow Spot Prices With A Lag
Source Natural Gas Intelligence Weekly Gas Price
Index, Baker-Hughes Weekly US Rig Report.
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Natural Gas Net Imports Declined for the First
Time Since 1986
U.S. Natural Gas Net Imports
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Natural Gas Market Outlook

• Demand is projected to increase through 2004
• Domestic production is expected to expand with
  rising gas rigs drilling
• Net imports are projected to return to an
  increasing trend
• Storage refill will depend on weather and other
  market conditions this summer

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U.S. Gas Consumption

• Varies by location and by season
• Colder climates with large heating loads show the
  most seasonal variation
• Some areas peak during cooling season due to
  electricity load
• Some Consumers can Switch Fuels
• Obtain service that can be interrupted
• Provides flexibility for service providers
  during periods of peak demand

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Total Natural Gas Demand Is Expected to Expand
For the Next Two Years
Note This chart replaces a previous Figure 12
because of revised data for April 2003.
Sources History EIA Projections Short-Term
Energy Outlook, April 2003.
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Large-Volume Natural Gas Customers Are Expected
To Increase Demand
Sources Federal Reserve Board, EIA, RDI
Corporation (2003 Electricity Capacity)
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Natural Gas Storage Volumes Vary At The Start Of
The Heating Season
Working Gas Stock as of November 1
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Natural Gas Volumes Needed For Selected Storage
Refill Targets
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Natural Gas Spot Prices Will Decline From The
Level of the First Quarter of 2003 (Base Case
and 95 Confidence Interval)
Sources History Natural Gas Week Projections
Short-Term Energy Outlook, April 2003.
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Natural Gas Supply, Consumption, and Imports Are
Projected to Expand Through 2025(1970-2025,
trillion cubic feet)
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Mechanisms to Manage Price Risk

• Trading in Futures Contracts
• Longer-Term Contracts
• Fixed-Price Contracts
• Storage for Physicals Hedging
• Ability to Use an Alternate Fuel
• Residential Customers Can Choose Budget
• Payment Plans

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Near-Term Natural Gas Market Issues

• Supply Will supply increase enough to satisfy
  growth in consumption? Will Boom and
  bust cycles discourage investment?
• Weather The possibility of a hot summer or cold
  winter would put upward demand pressure on
  gas markets.
• Storage Will refill be adequate for next
  winters demand?
• Consumption Will forecasted growth in natural
  gas consumption be realized? How will
  consumption be affected by price volatility,
  fuel competition and service requirements of
  electric generators?
• Pipelines Will necessary capital
  investments be made to expand delivery
  capability?

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Energy Information Administration

• Website www.eia.doe.gov
• Key EIA Staff Contacts for Natural Gas
• Beth Campbell, [phone], elizabeth.campbell_at_
  eia.doe.gov
• Barbara Mariner-Volpe, [phone],
  barbara.marinervolpe_at_eia.doe.gov
• Bill Trapmann, [phone], william.trapmann_at_ei
  a.doe.gov