Gregory J' Rizzo

1
Natural Gas PricingA HistoricalOverview
2004 Energy Finance Conference The Future of
Natural Gas Supply, Demand and Prices

• Gregory J. Rizzo
• Group Vice President
• Duke Energy Gas Transmission
• February 20, 2004
• The University of Texas at Austin

2
Duke Energys North America Operations
Regulated Electric Operations No. of Customers
more than 2 MM Gen.Capacity 19,900
MW Distribution Lines 66,000 mi Transmission
Lines more than 13,000 mi Unregulated Electric
Gen. Gen. Capacity 15,836 MW Natural
Gas Transmission Deliveries 3.1 Tcf Distribution
Deliveries (Union Gas) 0.5 Tcf Transportation
Deliveries (Union Gas) 0.8 Tcf Gathered/Processed
7.9 TBtu/d Storage Capacity more than 250
Bcf Miles of Transmission Pipe more than
17,500 Miles of Gathering Pipe 57,000 Miles of
Distribution Main 21,000 Miles of Distribution
Service 12,000 Processing Plants (owned and
operated) 55 NGLs Produced 368 MBbls/d NGLs
Crude Transported 88 MBbls/d
BC Pipeline Field Services
VANCOUVER
CALGARY
Union Gas Service Area
HALIFAX
Maritimes Northeast
BOSTON
Union Gas
CHATHAM
Algonquin
SALT LAKE CITY
DENVER
Texas Eastern
NASHVILLE
CHARLOTTE
TULSA
Duke Energy Field Services
Duke Power
East Tennessee
MIDLAND
Corporate Headquarters Major Offices Storage Opera
ting Facilities Merchant Plants
Construction Deferred BC Processing Union Gas
Service Area Unaffiliated Pipelines
TEPPCO
HOUSTON
Gulfstream
3
Regulation vs. Deregulation Comparison
Demand for Natural Gas
Price
Supply
Natural Gas Supply Contract
4
Supply Shortage
Supply Surplus
Coal Gasification
Order 436/500
Canadian Contract
LNG Suspended
Implement Order 451
Enactment of NGPA
Acquisition of Domestic Supply Ceases
Order 380
Arab Oil Embargo
Pipeline EBB
Canadian Gas LNG Enter System
Spot Market
LNG Contract
1970 1973 1975 1978 1982 1983 1984 1985 1987
0402-0082
.4
5
Supply 1988 - 1990s
Canadian Natural Gas
U.S. Natural Gas
Mid-continent
Gulf Coast
Mexican Natural Gas
LNG Imports
0402-0082
.5
6
Current Environment
Order 636
636 Implementation
Panhandle Eastern P/L 5-1-93
Texas Eastern Transmission 6-1-93
Order 577
Capacity Release
Algonquin Gas 6-1-93
Trunkline Gas 9-1-93
Capacity Release
1992 1993 1994 1995
0402-0082
.6
7
Post-Order 636Unbundled Pipeline Services
Gathering
Transmission
Production
Processing
Storage
8
Pre Order 636 Operating Schematic
Sales Transaction Point
Customers
Capacity Controlled by Pipeline
Storage
Supply Area
Mainline Transmission
Market Storage
LDCs
Producer
Pipelines
9
Post Order 636 Operating Schematic
Sales Transaction Point
Customers
Capacity Controlled by Pipeline
Storage
Supply Area
Mainline Transmission
Market Storage
10
After a Decade of Low Prices, Natural Gas Prices
are Now More Volatile at a Higher Level
9 8 7 6 5 4 3 2 1 0
Monthly Price (real 2003 dollars) Monthly Price
(normal dollars) Futures strip (from Nov. 5, 2003)
Price (/MMBtu)
Sources Nymex, EIA and Bureau of Labor
Statistics. Data current through May 2003.
11
Market Capitalization Comparison
10/01/01 vs. 04/01/03
(Billion)
(Billion)
160
140
120
100
80
Market Capitalization
Market Capitalization
60
40
20
0
TOTAL
TOTAL 10/1/2001
TOTAL 4/1/2003
12
Duke Energy Gas Transmission LNG Terminals
ANE LNG Cape Breton Is., NS
Irving Oil, Ltd. Saint John, NB
Sears Island, ME
DOMAC LNG Everett, MA
Fairwinds LNG Harpswell, ME
Keyspan LNG Providence, RI
Weavers Cove LNG Fall River, MA
Somerset LNG Somerset, MA
BP LNG Camden, NJ
Dominion LNG Cove Point, MD
ETNG LNG Kingsport, TN
Dynegy LNG Lake Charles, LA
BG LNG Lake Charles, LA
Tractebel LNG Freeport, Grand Bahama Is.
Shell LNG West Cameron Blk 182
Chevron LNG Vermillion Blk 140
AES LNG Ocean Cay, Bahamas
13
Prediction

• Natural gas will become a more global market
  leading to more price volatility as supply
  adjusts to markets willing to pay the highest
  price
• As gas prices increases this will lead to demand
  destruction i.e. process-users, heavy users, and
  alternative users (electric power plant) leading
  to lower prices
• As gas prices fall these swing users will
  increase demand for natural gas leading to higher
  prices

Conclusion Deregulation has lead to the
commoditization of natural gas prices which has
shifted contracting from long-term to short-term.
As long as we have short term pricing the market
volatility will continue. High price trends will
be followed by low price trends especially as
huge basins such as Alaska come on-stream.